By Bob Bradley, Chairman, MD2MD
News that the National Institute for Economic and Social Research (NIESR) has raised its predictions for UK growth - estimating that the economy will grow by 1.2 per cent this year and 1.8 per cent in 2014 — up from 0.9 per cent and 1.5 per cent — will certainly come as welcome news, but business owners would do well to maintain prudence.
In my own experience, small to medium-sized business (SME) owners have consistently remained optimistic about their own businesses relative to the overall economic picture and have adapted and evolved to succeed. Eurozone fears apart, SME business leaders have for a long time now seen the economic outlook as cautiously positive. And that’s how they want it to stay.
Real wise business leaders don’t want a sudden steep artificially engineered, QE and debt fuelled recovery leading into to an unsustainable boom — because they know what will follow. They want steady stable growth - the 1%-3% band will do nicely.
And whilst optimism in your own business and about the economy is of course a good thing, but so is caution. We are not out of the woods yet. If the UK economy is on the road to recovery, businesses now need to begin preparing for the inevitable rise in interest rates and a reduction in the quantitative easing measures associated with the current recovery.
Those inevitable steps in the road to normality are likely to be very tricky for the country and businesses. We have to be very careful that as interest rates return to normal, we don’t cause another dip as businesses that have been surviving on cheap debt go to the wall, and indeed we as taxpayers don’t find that as a country the interest on our massive debts doesn’t cause another cycle of decline.
So getting the balance right and navigating the pitfalls of recovery are critical. We don't want an unsustainable debt-fuelled recovery and neither can we afford to simply pull away the life support machine. The economy is in early stages of recovery and what we need is a carefully managed transition back to normality with sensible and sustainable levels of growth underpinned by solid and prudent business practices.
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