By Stephen Archer, director of Spring Partnerships.


I am forecasting circa 2% on the basis that 2011 will see some unwinding of our debt and this will not fuel GDP, quite the opposite as credit remains tight. We should in fact be content if growth is over1.5%. Over 2.5% will be very good. We are one of the safer EU economies. Inward investment should increase as should exports as the global economy shows genuine recovery and the pound stays relatively depressed. The UK will look like one of the better economies to base a business in.

Double dip?

No, there will not be one. The double dip question refuses to go away. Especially after the Irish crash. The fragile UK recovery and the stuttering US recovery (combined with Obama’s decreased authority) have served to undermine confidence and drive investors away from equities to treasury bonds, gold and other safer havens. This, despite the fact that corporations are generally performing well and certainly far better than a year ago. Even the airline industry looks healthier. Cash piles are also being amassed in the corporations. The cash pile in US large businesses is around $2 trillion — enough to effectively wipe out the US national debt.

So might we get a second dip? Consumer demand remains moderate and many are still reducing debt and those that have cut personal debt are being more cautious. In the US, recovery has brought about a sharp increase in imports and a very unhealthy negative trade balance in 2010. Confidence in the government’s ability to manage the recovery is shaky.

The only likely cause of a second will be a climate of self fulfilling prophecy. Every one becomes a little more cautious and as a result most indicators go the wrong way. Even this will only cause a more of a blip, within the next three quarters. But as I have always said, the recovery will be bumpy (some call it choppy) and so we must not read too much into a new negative trend.


I think Q1 will show 2.5 - 3%. It could be worse but retailers will show forbearance and swallow margin, i.e. VAT, food, raw materials prices and uncertainties over Oil and Gas supplies plus some bullish pricing from many overseas producers from whom we buy goods will push inflation up.
Q2 may show some re-adjustments and a rate of 3.5-4% or more. This will cause panic in the markets and Westminster but in my view this will fall back to 3% in Q3 and Q4. We should not worry about this too much. There will be wage driven inflation having had 2-3 years of locked down salaries.


Dollar down to $1.70 and the Euro down to 1.30 against sterling during 2011. The US dollar should, and I think will, be allowed (and encouraged) to float down to help its exports. Its current account balance is a disaster and I feel that President Obama’s options are limited. China will not want to re-value the Renminbi and will not do so. One cannot talk too long about currencies without considering trade imbalances. China has yet to declare that it sees a risk in its vast trade surplus. I think that point may come in the next two years, but not too soon and not in early 2011.

The big question is over the Euro. Arguably this has been overvalued for some time. With a large part of the Eurozone in debt it is remarkable how strong the currency is. Two things could happen with the Euro. Firstly, I predict that against Sterling the Euro will fall 10% within the next 6 months. We are witnessing the beginning of the end of the Euro as we know it. The model is fundamentally flawed.

Interest rates

No change until Q2 when it goes up 0.25%. Not a big jump but symbolically huge. This will be in response to the inflation level and will be seen by the outside world as a gesture of confidence in the economy on behalf of our central bank. If the 0.25% rise does not cause any adverse reactions then they may raise it by another 0.25% in Q3.

What’s going to happen in banking?
Less than the public thinks — or hopes! Here is an area where there will be some softening of taxation plans. The political headlines and the execution detail will diverge somewhat. The Electorate despises the banks but they are vital to the UK economy and cannot be allowed to go offshore.

Quantitive Easing?

Quantitive Easing is inevitable in 2011. It might get re-positioned as debt swap or bond re-issue; the amounts needed are eye watering.
Banks all over the advanced economies face a huge refinancing challenge over the coming few years. Private sector funding will mature and state funding will need to be paid back. The total bank funding is at least US$5 trillion of medium to long-term funding maturing over the next three years.

United Kingdom banks will need to refinance or replace around £750 billion—£800 billion of term loans and liquid assets by the end of 2012. For this reason alone I think Quantitive Easing is inevitable in 2011.

Stephen Archer is a director, of UK business and leadership consultancy, Spring Partnerships and an economic and business analyst. He is a consultant to CEOs of FTSE 100 and multinational companies including Nestle, GE Healthcare, Disney, KPMG, Carlsberg and Oracle amongst other.