Local and national economy growth predictions

Mark Froud, chief executive of Sussex Enterprise, deciphers mixed messages to predict local and national economy growth in 2012

The view of the Office of Budget Responsibility is that the UK economy will grow by 0.7% this year. Do you believe them?  There are so many mixed signals and events out there that it is hard to know what to believe. There are a number of observations that I have to make. 

On the positive side: 

We have the lowest level of interest rates for a generation and it is unlikely that they will rise in the next year.  The level of inflation is dropping and will probably be below 2% by the middle of the year. Exports are still growing as exchange rates still favour the UK. 

 Of concern are:

Consumer confidence is very low with most people seeking to pay off debt rather than take on new debt.  We borrowed �315bn between 2002 and 2010 from remortgaging and have paid back �56bn in the last three years. Any increase in spending is on essential items.  The housing market is still slow with few houses on the market and few buyers looking.  Businesses are sitting on �300bn of cash, but despite having plans they have not reached the point of commitment. Capacity utilisation is not close to maximum which means there is slack in productive capacity.  Therefore, significant increases in private sector employment are unlikely.  During the year public sector job losses will increase.

Overall the outlook for this year is slow growth with some consistency emerging as the year progresses. The key to growth is a return of consumer confidence and the continued progress of our export trade. Neither of these are  quick wins, but they will provide a more balanced and sustainable economy in the long run. 

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So it is a very mixed bag of indicators and messages out there.

In Sussex the picture is brighter. We have traditionally performed better than the national economy and continue to do so.  I expect our growth to be double the national average at 1.5%. The sentiment from the 193 businesses that I have seen in the last year is one of cautious optimism and a belief that we have not completely turned the corner yet. While sales are growing they are doing so at the expense of margins, which are under considerable pressure.  On a more positive note, businesses that are recruiting are now recruiting for permanent,  rather than temporary, staff. There are however a large number of people looking for work and many of these are good quality applicants. The Coalition Government has a number of incentives available to take new people on including Apprenticeships and Work Experience schemes.

Much of our advice at the moment is for businesses to continually look up and outside of their business to see if there are new opportunities, but to focus on those that generate profit and not just those that generate turnover.  We have just launched a new business advice service that provides some free advice that will help sought out any problems that you have and provide an independent view.  Sometimes we all need to take a step back and see the big picture.  It is often easier to do that with somebody else’s help. 

If you want to know more, visit our website at www.sussexenterprise.co.uk or ring 01444 221121.