Prospects for UK growth and M&A

Prospects for UK growth and M&A in 2012 with Philip Marsden

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Philip Marsden gave an eloquent address to this morning’s Leadership Forum at The Commonwealth Club which provided a snap-shot of the British economy and the potential for growth, in the context of a constantly changing global picture.

UK Debt – A confidence trick?

In terms of personal and corporate debt Britons are reducing costs as and where they can, which is having a direct effect on the economy as a whole. Individuals are opting to save their cash rather than spend and companies are repaying loans and reducing overdrafts rather than borrowing more to expend or renovate. Despite significant cut backs and job losses the Government is in fact still spending at the same levels and continuing to accrue debt albeit in slightly different ways. This does not bode well for the Chancellor’s recovery plan as it is essentially hinged on households spending more and saving less.

“Government spending, despite job cuts etc, remains the same and continues to accrue more debt”

In the course of his presentation Philip referred to a recent Financial Times report which stated that “no Government since the 30’s has had to plan such deep cuts over such a prolonged period”. What does this mean for the general public and industry?There will be an opportunity for the private sector to gain from Government cut backs. Many of the functions, roles, responsibilities and services currently performed/supplied by Government bodies will have to be outsourced to private firms.

Some of the more eye watering facts...

• According to The Office for Budget Responsibility (OBR) Britain will have to borrow more than expected in the next five years – this debt is expected to reach as much as 92% of British GDP within the next three years.

• The British economy will shrink in the final months of 2011 as consumers cut back on spending and try to increase their saving and it is expected that discretionary spending will not return to the high points seen in 2001 before 2016.

• In 2012 the British budget deficit will be 8.7% GDP in comparison to Greece at 7%; Italy at 1.6% and France at 4.5%. In fact Great Britain will trail behind only two other developed countries for budget deficit – USA and Japan.

• Robert Chote, chairman of the OBR has been quoted saying “The chances of a much worse outcome are greater than the chances of a much better one.”

• In terms of the recession, Q1 2009 was the worst period for the UK economy showing a fall year-on-year of 7% GDP compared to 9% in Germany. The peak in recovery (so far) was in Q3 2010 which showed 2.5% growth in GDP.

• Assuming that the issues in the Eurozone are “fixed” the OBR is forecasting that negative growth will return to 0.7% in Q2 2012 and realistically significant growth will not begin until 2015.

• Exports have risen by 17% in the twelve months to September 2011 however this rise has come about through price increases as opposed to any volume increase. Alongside this, about ½ of all British exports are still bound for the Irish republic – more than all of the BRIC countries combined. There is huge potential for growth in this sector.

• This time last year it was anticipated that Public Sector job cuts would hover around the 490,000 mark. That has now been readjusted to be somewhere in the vicinity of 710,000 – the issue of unemployment can and will only be ‘fixed’ by the private sector.

There are signs of hope...

• Low interest rates will remain for years to come.

• The Olympics – London 2012 may not be the “cash cow” in itself that so many are hoping for, however it is a unique opportunity to showcase Great Britain to the World and to market England, Scotland, Wales and Northern Ireland to new market segments.

• Because Great Britain is not part of the Eurozone it has not been as adversely affected by refinancing problems, given that it has its own currency and can continue to print money.

• Cash retention levels in the corporate sector in both the UK and the USA are unprecedently high due to low wages and reduced levels of spending.

• The UK has always been a natural magnet for international investment, particularly given its safe haven status. If attention is focused and investors actively targeted, there is considerable scope for the economy as a whole to grow and prosper.