Tough year ahead for UK plc – but longer term future sound

November 28, 2008

Peter Hemington is a Corporate Finance Partner at BDO Stoy Hayward. The views expressed are his own.

peterhemingtonbdo-stoy-haywardOver the past few weeks several business surveys, including our own BDO Business Trends report, have painted a very gloomy picture of the UK economy. Short and medium term business confidence continues to plummet as the credit crunch takes its toll on unemployment figures, the housing market, the ability or desire that banks have to lend and consumer spending.

But despite this, the UK has some short term positives that we should not forget – low interest rates and inflation, plus a relatively flexible labour market. Additionally, although public sector borrowing is clearly running at too high a level, the ratio of national debt to GDP ranks somewhere in the middle amongst high income countries. So perhaps the UK’s credit is better quality than some commentators have suggested. And despite an equally gloomy outlook for the employment market – highlighted by this week’s announcements about two big names from the high street, Woolworths and MFI, going into administration – the unemployment figure is considerably lower than it was at the onset of the last recession.

Low interest rates and inflation, relatively low unemployment, not such a bad fiscal position – perhaps overall we could be in a stronger position than we were in 1991.

As for the longer term, it’s worth remembering that Goldman Sachs suggested not so long ago that the UK’s per capita GDP could catch up with that of the USA within twenty years or so. No doubt a part of this was extrapolation of historic trends. But these trends are based on some strong fundamentals. The UK is a free trading nation strong in sectors, such as financial services, which will grow their share of world GDP in the longer term. Foreigners come to the UK to do business because they trust our legal system and our government institutions. They will continue to do so and this will continue to generate income for the British economy.

2009 will undoubtedly be an uphill struggle for businesses, but the foundations described above should provide longer term solace for UK businesses as they try to predict what the future has in store for them.

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