Sam Talby’s views on the economy

Sam Talby, who is Partner at FRP Advisory discusses the prospects for the UK economy.

Pre and post-Christmas, economic commentators have been debating whether the UK economy will fall back in to recession following some growth towards the end of the year – the dreaded triple dip recession.

Output fell in the final quarter of 2012 and the fear of The Centre for Economics and Business Research (CEBR) is that output could fall again.

The actual and perceived Eurozone crisis also remains the biggest challenge for our economy given it is the UK’s biggest trading partner.

Manufacuring and construction industry

A Survey carried out by Markit /CIPS Services Purchasing Managers’ Index (PMI), for services, manufacturing and construction industry fell by 0.2. Averaged over the fourth quarter as a whole, the PMI was at its lowest level in three and a half years.

Two successive quarters of negative growth (i.e. economic contraction), would mean the third recession within five years and sets the background for a bleak 2013.

The Office for Budget Responsibility, the Government’s official forecaster, last month predicted growth of 1.2% for 2013, 2% for 2014, 2.3% in 2015 and 2.7% in 2016.

Commentators have stated that the outlook for growth is weak and further recession is therefore inevitable.

Will it be a triple dip?

We will only know that the UK has hit a triple dip when it is officially announced in the Official GDP figures for Q1 of 2013.

Many people I have spoken to have commented that since 2008, we have not really been out of recession and until there is strong growth we will continue in the economic malaise we find ourselves.

Low interest rate economy

The low interest rate economy in which we operate has not in my view provided the stimulus for growth as hoped. Near-zero interest rates should have encouraged firms and consumers to borrow and spend.

Businesses have found obtaining credit difficult and consumers have been encouraged to pay down debt rather than spend. Expanding the money supply through quantitative easing has flamed inflation fears and has not supported the strong growth hoped for.

It is for Government both nationally and at regional level to put in place clear strategies for growth, ensuring avenues to finance are available to “good” business and providing confidence to consumers to spend.

The alternative is to drift as we are doing and my view a technical “triple dip” becomes a self-fulfilling prophecy.