By Daniel Hunter
While 2012 has been tough, conditions in 2013 should get better, but only marginally so.
That’s the view of the Forum of Private Business’s economics expert, Professor Philip Whyman, who has warned of another tough year ahead for business with growth coming in at under 1% for the year — significantly less than growth forecasts from the CBI (1.2%) and the ONS (1.4%).
Professor Whyman thinks though that much will depend on the depth of the recession in the Eurozone — the UK’s biggest trading partner — as to how things eventually pan out.
Professor Whyman, an economics academic from UCLan, said: “This has been another difficult year, and with every prospect that the next few years will see little marked improvement.
“GDP growth has flatlined in 2012, with the economy experiencing a double dip recession.
“This sluggishness is a feature of financial crises, as those firms and consumers who over-borrowed in good economic times start to pay off some of their debt, whilst the financial sector, having got their fingers burned by being too incautious, use available capital to strengthen their own balance sheets rather than lend to small businesses.
“The Eurozone crisis is also far from resolved, thereby undermining the anticipation of an export-led recovery being based on trade with our closest neighbours.
“Consequently, forecasts for growth rates in 2013 are feeble, ranging from around 1% by the Bank of England, to 1.2% by the Office for Budgetary Responsibility (OBR) and 1.4% by the CBI. Indeed, the Bank of England predicts that it will not be until 2015 at the earliest that the UK national income will have recovered to the levels last seen before the 2008 financial crisis — eight wasted years!
Professor Whyman also points out that the threat of a triple dip recession has not gone away.
“Warnings have been given that the possibility of an unprecedented ‘triple dip’ recession may arise if the economy has again slumped over the final period of 2012 and first half of 2013, with a weak recovery thereafter.
“Given the lack of budgetary stimulus, the unwillingness of the Bank of England to engage in further quantitative easing for the time being, and the fragile state of the UK economy, I expect the UK economy to grow by less than 1% next year,” he said.
There was at least some good news for the UK economy in terms of jobs throughout 2012, which had surprised everyone, he said.
“In terms of unemployment, this is the apparent success story of the flexible labour market, in that all commentators, myself included, have been wrong footed by unemployment falling despite the weak state of the economy. Expectations are for little net change next year, remaining at or around 2.5 million or 8% of the labour force.
“These headline figures should be treated with a little caution though, as they mask the fact that much of this seeming improvement has occurred due to a large increase in the self employed and those working part time but wanting a full-time job.
“In other words, the numbers of people in employment is disguising under-employment; an issue less important when the alternative might be unemployment and the rusting of skills, but it becomes more significant when the economy starts to grow if firms try to hold on to this hoarded labour, as this will lower the productivity of the economy as a whole.
“The weakness of the labour market is reflected in falling real incomes and the resultant lack of consumption expenditure.”
As to what the Government could do to stimulate growth, Professor Whyman believes there are actions it could take. Primarily he says lending to small business must be improved by any means possible. He also suggests a programme to re-skill the economy to help improve employment.
“They could act now on providing more credit to those SMEs with good growth potential, preferably by side-stepping the banks if they remain incapable of performing this function, using a combination of insurance, pension funds and national or regional state banks to do what needs to be done.
“They could invest in a significant re-skilling of the UK labour force, including revisiting recent higher education reforms which are likely to undermine this effort. They could engage in an effective industrial policy, which could achieve the re-balancing of the economy that both coalition parties advocate, by targeting investment towards those sectors where independent business advice might indicate a potential competitive advantage for the UK.
“And they could move quickly to stimulate the construction sector by engaging in infrastructure and house building projects which will be needed by the economy of the twenty first century.
“This should be a good time to agree contracts for these investments, as large parts of these industries lie idle but, should competition not provide low prices and value for public investment, then there is nothing to stop the public sector from either building things itself, or alternatively setting up alternative, perhaps co-operative, organisations to be tasked with providing houses to meet social need, as occurs in many other European economies.
“The only real limitation to these initiatives is the imagination of those in charge of the national economy.”