AT THE
HEART OF HIRE FOR
1971 40 YEARS 2011 UNCER TAINTY BREEDS OPPORTUNITIES
August proved to be a wicked month both socially and economically for the UK, and economically, at least, for our major trading partners in the EU and the US. This Forum is being written as the FTSE 100 Index plunged below 5,000, the day after the Index fell 4.5% to close at 5092.23, its sharpest fall for over two years. Investors are now running scared that recession is about to engulf the western economies once more. Are they right, or is this behaviour irrational?
It is perceived wisdom that the Stock Market tends to be a year ahead of the actual economy; we know only too well, both from the official statistics issued by the Bank of England and from our own personal experiences and observations, that UK plc is struggling. Economic growth is proving elusive; the Government’s thesis that increased activity in the private sector would compensate for cutbacks in public expenditure is proving somewhat illusory. Even before the latest severe bout of jitters by investors, the Bank of England had pruned its forecast for growth this year from 2.5% to ‘nearer 2%’.
MAIN CUSTOMER BASE IS CONSTRUCTION
Unemployment is continuing to rise, and is now edging up to 2.5 million, and inflation is currently running at 4.4%, with economists predicting a peak of 5% this autumn. One-off factors such as the rise in VAT should mean inflation returns to a downward path next year, but the Bank of England is taking a cautious stance, warning that there are significant uncertainties and risks. Meanwhile, unemployment is likely to rise further as the effects of Government spending cuts take hold. The UK economy may or may not go back into recession; what is clear is that, at best, growth will be at a very low level in the short to medium term. None of us can be immune from what is going on in the national, or indeed, the global economy. For many in the hire industry, the main customer base is construction and its
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wide range of associated trades. Even though activity levels have fallen dramatically since the ‘credit crunch’, construction still represents 7% of the UK’s GDP, with 40% of such activity paid for by the public purse.
Clearly, the full effect of national and local government cuts has still to come; for example, the Highways Agency is set to cut spending by 44% over the next three years. There are, of course, other areas of expenditure, particularly relating to energy and other utilities, that should become increasingly buoyant.
The hire industry has had to adjust to the depressed level of demand over the past three years and there are many indications that it is now beginning to regain its momentum. This month’s City News (page 9) looks at recent progress reports from Speedy and Vp, which both indicate improving trends. Meanwhile HSS has issued its half year results showing a very encouraging 9.2% growth in ‘like-for-like’ revenues compared with the first half of 2010.
Other companies have told us that they have enjoyed ‘a good July’, so clearly hirers are succeeding, despite difficult conditions. One thing hirers should never lose sight of is that periods of uncertainty breed opportunities. Existing or potential customers will look eagerly for greater efficiency in their operations; reliable plant and equipment is a critical factor for many managements. There is a wide range of businesses where equipment hire can penetrate much further, by selling itself as the most efficient way to meet equipment needs. However, it can only do so if it provides a reliable, high quality service.
We are confident that there are many examples of that happening right now and that this will continue, recession or no recession.
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