Out of recession but what next?
No matter which sector of industry a company is involved in, or where you reside in the UK, the implications of the current state of the British economy continue to have far reaching consequences.
While technically and officially we are out of recession, it is the sustainability of that economic state which is now under scrutiny.
There remains much speculation about the emergence of long awaited green shoots of recovery yet the recent warning from the ratings agency, Fitch, that Britain is in clear danger of losing its cherished AAA credit rating is a stark reminder of just how fragile a situation is faced by businesses the length and breadth of the country.
The consequence of weak growth and continually increasing Government borrowings means that companies still have to cope with the prospect of a downgrade and the consequent implications for interest rates and borrowing costs.
The earlier forecast by Fitch of a growth margin of 0.8 per cent this year has been reduced to a 0.3 per cent decline and would appear in line with recent predictions by the International Monetary Fund of a 0.4 per cent shrinkage in the UK economy over the remainder of this year.
Add into that fiscal mix the warning that the country’s international debt will hit very close to 100 per cent of GDP and the problems are clear. Indeed the continuing turmoil in the Eurozone has compounded the negative impact on the potential for growth in the UK from private sector deleveraging.
It is clear that the UK has very limited wriggle room to absorb further economic setbacks without triggering the downgrade situation. Coming out of recession doesn’t represent a seismic shift in the right direction; more like a baby step!
However there are a number of positive indicators in the context of the underlying state of the economy.
The upward revision of the major players in Britain’s services sector revealed that the sector grew by 1.1 per cent in July.
Given that the statistics were the strongest since May of last year it fuelled commentary by a number of economists that the double dip recession may be reaching its end game – and they were right.
Consumer confidence, backed by the easing in secured household credit availability, is another positive indicator along with that of increased mortgage approvals which signals things are moving in the right direction.
In short this remains a difficult time for all businesses; and while that’s an obvious statement to make, remedies are far from obvious with one guru after another adding their ingredients to the economic stew.
With Prime Minister David Cameron girding the loins of the nation for its ‘hour of reckoning’ following the Conservative Party Conference, it is clear that there will be no substitute for hard graft in challenging times.
So from John O’Groat’s to Lands End and at either end of Hadrian’s Wall any apparent green shoots of recovery are going to have to survive a fairly harsh winter.