Let’s do lunch…..

Recently I had lunch at the Bank of England. I’ll just let that one sink in a moment. Actually it was the day that the Monetary Policy Committee decided on a second round of quantitative easing, although I can’t claim to have influenced the decision even though I visited the room in which they made it. The committee of course were long gone by then, and all efforts to get an inside line on their discussion by looking for indentations on the notepaper left behind were in vain…..

OK, a moment to show off perhaps, but like most things I do it was an opportunity to share knowledge and find out what is really happening in the world of Enterprise Britain. The reason for my lunch was a meeting with Peter Andrews, Greater London Agent for the Bank of England, alongside other members of the London Local Chambers Forum. The Bank uses agents like Peter throughout the UK to gather anecdotal evidence to add to the swathe of numerical and statistical data used to monitor the economy.

As you can imagine, when a dozen or so businessmen committed to success get together in a room strong views and opinions fly out at a rate of knots. Regulation, planning, support for construction, infrastructure and education all came under the spotlight. Unsurprisingly the banks got a bashing for their continuing reluctance to provide the finance required by SMEs in the current climate. There was some concern about inflation and its potential impact on pay settlements which to date have been subdued as employees focused on keeping their jobs.

One of our number asserted that what was happening was more of a restructuring rather than a recession based on a shifting of the economic balance of power from west to east, and that solutions needed to be in place to address this fundamental issue above all else.

As the penultimate contributor I noted that little attention was paid to the level of underemployment in the labour market, particularly amongst older professionals who have become freelancers as a result of being made redundant, which was a tremendous waste of talent. I also made the point that it would be nice if the large corporates who are apparently hoarding £60billion in cash at present could use some of this to pay their smaller suppliers on time. The impact of this on SME working capital would be significant, more I would venture to suggest that any increase in the availability of bank finance.

Throughout all this, the man from the Bank of England took copious notes, smiled, empathised, made fleeting comments, sought clarifications and picked up on points that were consistent with what he was hearing from other sources.

Hopefully what he heard from us will make it back to those with the power to deal with the macro economic issues that appear to be putting recovery at risk. For many people 2011 was shaping up to be a good year until the economic situation started to deteriorate during the summer.

In spite of all the gloom it is clear that companies large and small are getting on with life and trying to grow their businesses. It would be a shame if all these efforts went to waste because the policymakers were unable to do their job. We are playing our part. One hopes they realise this in London, Washington, Brussels, Frankfurt…….

Crystal Ball Gazing…….

I am often invited by banks to hear the latest views of their in-house economists, and this week was the turn of the Royal Bank of Scotland  and David Fenton, Head of Microeconomics.  In his opening remarks, David noted that it was St Patrick’s Day, and he hoped that the Irish patron saint’s ability to explain the complexities of the Holy Trinity through the three leaved shamrock would rub off on him in his efforts to explain the current economic situation in simple terms.

By and large he succeeded in his aim.  He said that the recovery did start in the fourth quarter of 2009, but he felt that growth was likely to be sluggish, with the economy likely to take about 5 years to return to its 2008 peak.  Growth had previously been driven by consumer and government spending, and a sustained recovery would depend on some rebalancing back to other areas of the economy, such as investment and export.  

He said that the recent trade figures may have made disappointing reading,  but export led growth requires global demand as well as currency depreciation, and with the pound unlikely to return to its more normal levels until some time in 2011, there was still time for this to have an effect.

He noted that the consumer was still in saving mode.  Historically for every £100 earned, £4 was saved and this had currently risen to £7, a far cry from the days when the consumer was apparently spending £104 for every £100 earned!  How this would change would depend on employment and interest rates, and he did not see the latter moving up again until well into 2011.

Sector winners were likely to be manufacturing and construction, although these will be coming off of a very low base, while sectors such as hotels and restaurants and health and education were likely to remain sluggish. Geographically London, the North West, East Midlands and East of England will be leading the way, while the South West, Wales, Northern Ireland and the North East will be lagging behind.

All in all a timely reminder of where we are at present, and the continuing uncertainties and risks that face the UK economy.  This was further backed up by this week’s unemployment statistics, which showed a drop in both employment and unemployment!

Notwithstanding the above, a recovery of some sort has clearly begun, although given the economic stimulus that has taken place it would be very worrying if it hadn’t.  Sensible businesses of course will not be relying on a general improvement in the economy to move their business forward, and will already be out there creating a recovery of their own.

Not just a Swallow?

It would seem that those on green shoots watch have had a whale of a time over the past couple of weeks with a number of positive bits of economic news emerging, as well as the apparently successful G20 summit in London.

The banking situation seems to be improving, with the news of record profitability for Wells Fargo in the US, and reports of a marked increase in the amount of loans being written under the Enterprise Finance Guarantee Scheme.

There are continuing signs of relatively robust consumer activity, and with property prices seemingly within sight of the bottom, cash buyers are interested again. A 90% mortgage product has recently been introduced by HSBC which could provoke a small boost to the housing market.

Also, although they have significantly increased, insolvencies and repossessions have not reached the predicted levels.

Then there are the many people who are securely in work and have been benefiting from significantly reduced mortgage payments. Once they have paid off some debt, they will be looking to spend again, although without necessarily borrowing to do so.

All the above would seem to support the idea that there are some signs of confidence returning, and as we all know it is confidence rather than credit which will drive economic recovery.

This blog has made no secret of its belief that the economy, or more pertinently the ordinary people and businesses that inhabit the real economy, is more resilient and positive than the various media outlets have given it credit for, and that many businesses have acted decisively and imaginatively to combat the impact of the downturn (one reason perhaps that the retail apocalypse predicted for the quarter rent day of 25th March did not come to pass was that fact that many businesses had already negotiated better deals with their landlords).

However there are still a number of macro economic clouds on the horizon, including the number of large corporate refinancings that are due over the next year or so, the state of government finances and the medium term action that will be required to improve them, and the feeling that for all the talk of deflation, the underlying inflation rate remains at a persistently uncomfortable level. Unemployment is also likely to increase further during the rest of the year.

As Aristotle is credited with saying “One swallow does not a summer make”. The selection of positive news above does not mean that the current economic problems have gone away. Careful planning and flexible use of resources remains the key, whether it is developing a new product, investing in new capacity or taking on new people, particularly at a senior level. There are some reasons to feel good at last, but that does not mean caution should be thrown to the wind.

Antony Doggwiler

I’ve got the brains you’ve got the looks…..

Back in the 80s the Pet Shop Boys banged on that “There’s a lot of opportunities, if you know when to take them, if there aren’t, you can make them”.

It is easy to think at the moment that opportunities are in short supply but talking to Henry Camilleri of independent financial advisors Camilleri Associates this morning at a breakfast seminar organised by Clydesdale Bank, it was interesting to hear that he has used the current wave of redundancies by major insurance and investment firms to increase his network of experienced financial advisors. As he said, the chance to bring on board some highly talented people that would not normally be available to him was too good to pass up, and has enabled him to add some weight to the strategy that he has set out for himself to improve his business in 2009. This was one of the points we made in our recent SMART presentation so it was good to hear of a practical example.

The topic today’s seminar was ‘Doing business in a slowing economy’ with Terry Irwin of TCii Strategic and Management Consultants, a common enough theme perhaps, but the point that companies need to get back to the basics of financial management in order to survive and thrive in the current market bears repeating again and again. Our hosts Clydesdale Bank also made this point in relation to the fact that their parent company National Australia Bank is currently one of the few banks that is relatively unscathed by the current banking turmoil. Terry Irwin believes that we should hit the bottom of this recession during 2009, with some small signs of recovery starting at the end of 2009 or beginning of 2010. Given the speed that the economy is unravelling, I would agree with his assessment about reaching the bottom, but would suggest that businesses adopt the advice of the Pet Shop Boys regarding opportunities in order to plot their own course to recovery outside of any general economic improvement. Henry’s actions above are good start along this road.