Board Insight

Economic green shoots or are the statistics wrong? – Tim Jones

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It is difficult to draw any other conclusion than that the general state of the nation’s economy is at best subdued and possibly hovering on the brink of a recession.  The barrage of generally bad news seems never ending.  The Bank of England and others who can influence the economy are still sitting on their hands as to what will happen next.  The government are also not helping, such is the general turmoil in Whitehall.  None of this is helped by the forthcoming General Election, which now looks a reasonable certainty for October/ November 2024, rather than May (in any event the General Election must be held before the end of January 2025, and no sane government would dream of a General Election near to Christmas).

For all of us in business, confidence is everything.  We all need to plan ahead.  In my business, we like to be able to work with a 5-year development plan.  The inability to plan ahead and this general bad news, do not give us the opportunity to take a positive view.  The danger therefore is that we all sit on our hands.  I am not a great one for statistics, but it is intriguing to see some of the latest figures coming from various sectors which might in fact suggest that those green shoots are about to emerge.  The latest figures regarding private sector business activity have just been released for January (S&P Global and the Chartered Institute of Procurement and Supply) both show an increase in activity during January by comparison with December.  This could be explained by a growing belief that the rate of inflation has finally been cracked and the likely reduction in bank interest rates.  The same survey suggests that private sector employment increased in January for the first time since last August.  Principally in the service sector, but sufficient to offset downsizing in the manufacturing sector.  The Bank of England have stated that consumer prices indexed inflation will drop back to its 2% target by Spring from the present level of 4%.  If this happens the Bank of England anticipate that they could cut base interest rates several times this year from the current 16-year high of 5.25%.

Expectations may explain why both household and business spending have picked up.  This will be good news for two of the most embattled business sectors – retail and hospitality/ tourism.  The British Retail Consortium figures support this growth trend, with retail sales increasing in January and evidenced that consumer confidence is steadily recovering from a low ebb which has persisted over the last 2 years.  This growth is however patchy.  It has been very weak in High Streets.  It is better in retail parks but persistently is improving with online retailing.  The other sector we need to support as much as possible because of its importance to the Northern Devon economy is hospitality/ tourism.  Historically this sector has its most difficult trading period from the end of the Christmas break to the beginning of the Easter break.  Many business owners use this as a time to refurbish their properties or take a break themselves.  Currently, there is no evidence of green shoots in this sector, indeed “dry January” has resulted in a downturn in revenues in pubs, bars, and restaurants.  It is essential that we give this sector as much help as possible.  Everyone can do their bit by just simply using local business outlets, rather than travelling outside the region.

So, are these green shoots a false dawn?  The Governor of the Bank of England is frustratingly cautious.  He thinks that the inflation problems have been cracked but warns us not to expect sudden reductions in interest rates until he and the Monetary Policy Committee are certain that inflation will not rear its head again.  His caution is also influenced by the political uncertainties as we approach the General Election.

For Northern Devon these market signals are important, my advice is to take a positive view, plan for the future, and better business prospects, but manage cash with extreme caution and ensure that everything possible is done to retain a loyal workforce.