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.

Work? Well if you insist…….

A couple of interesting reports caught the eye this week on the future of work and employment.
The first from the New Economics Foundation suggested that the working week should be cut to 21 hours , saying that this would help boost the economy and improve quality of life by easing unemployment and overwork. They admitted that people would earn less, but said that they would have more time to carry out worthy tasks.

I am sure most entrepreneurs when they heard about the former, initially though “21 hour days – that seems about right” but no, the authors really were suggesting that 21 hour weeks should become the norm, with a few additional hours no doubt to carry out some worthy tasks.
The second by Friends Provident suggested that by 2020 we would have an elite group of knowledge workers who, due to the their scarcity, would be able to demand higher salaries, better benefits and a greater degree of professional fulfilment. However, we would also have a growing underclass who would face poor prospects and limited expectations, which could leave UK plc facing a serious skills shortage.

Clearly working life is changing for many of us, and it is interesting to note that more and more young people are looking to control their own destinies, and expressing a desire to set up their own businesses. However the skills question keeps cropping up, and I suspect that personal development will need to remain a priority however many hours we work a week.

Given the above two reports, it is interesting that much of the comment surrounding the unemployment statistics for January focussed on the issue of underemployment, and how measures such as part time working had effectively kept the headline numbers down. Underemployment is one of the big issues of this recession, and many of the statistics quoted do not include those people who are setting up their own business or working as freelancers. Many of these people are working very hard to establish and market their business, but are underemployed in terms of actually earning real money.

All this reflects the changing nature of work and employment over the last decade, and many of the trends, such as flexible working and people starting their own businesses, will be accelerated by the current economic downturn.

Very exciting stuff of course, but what this move away from traditional employment will mean for the future tax take and our yawning public sector funding deficit is another issue, and no doubt the subject of another blog.