UK economic outlook

ePolitix.com Stakeholders respond to the news that leading economists now believe Britain’s economy is set to slow down in 2008.

Stakeholder response: CIPD

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John Philpott, chief economist, said: "We forecast a net rise in total UK employment of 75,000 (0.25 per cent) in the year to December 2008, only a third of the rise recorded in both 2006 and 2007, resulting from a combination of much reduced net hiring in the private sector and net job reductions in the public sector. This would be the worst year for jobs this decade and easily the worst since the Labour government came to power in 1997.

"In the early part of the decade periods of slower growth in private sector employment were masked by relatively rapid growth in public sector jobs. A downward trend in public sector employment in the past two years has in turn been more than offset by rising numbers of private sector jobs. But 2008 will be the first year for a decade that the engine of job creation will be spluttering right across the economy.

"With higher fuel costs and food prices set to raise the cost of living in the first half of the year the squeeze on real incomes experienced by many workers in 2007 will continue to bite in 2008. With jobs also harder to come by this could reinforce the impact of the economic slowdown, possibly necessitating bigger cuts in interest rates than currently anticipated to head off the threat of recession and a worrying prolongation of the slowdown into 2009.
 
"For seasoned HR professionals 2008 may evoke memories of tougher times - those whose experience doesn't stretch back to before the economic stability of the past decade will have their first taste of seriously choppy business water.

"Despite a considerable amount of organisational restructuring in the past decade large scale redundancies have been running at historically low levels. This is likely to change in 2008 with more HR professionals having to deal with the particularly tricky task of handling compulsory redundancies. This will present a challenge to those HR professionals that have not had to walk the tightrope of laying-off large numbers of people while ensuring that people who keep their jobs remain committed and motivated.

"Many HR professionals will be dusting off redundancy manuals in the coming months to re-discover best practice on trimming staffing levels. But unlike previous bouts of large scale job shedding in the early 1980s and early 1990s, which tended to fall relatively heavily on older staff, redundancy practice in 2008 will have to take care not to fall foul of recently introduced age discrimination legislation."

Stakeholder response: The Chartered Management Institute

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Petra Wilton, head of public affairs, said: "UK managers believe 2008 will be a tougher year for business, thanks to rising business costs, higher levels of debt and a shortage of management skills.

"The Institute’s survey of over 500 managers, carried out in December, shows decreasing confidence and greater uncertainty about the year ahead compared to 12 months ago. Over half say that the rising cost of energy will impact negatively on their business, while 39 per cent expect to be affected by the credit squeeze in financial markets.

"Managers also expect a drop in consumer spending to hit their businesses, with 81 per cent predicting a rise in household debt. Only 28 per cent think that consumer spending will rise. On top of this, over 60 per cent predict a rise in inflation in 2008.

"Worryingly, almost half of the employers we surveyed expect a shortage of management skills to have a negative impact on their business performance. However, this does not seem to have prompted a greater focus on skills development and many managers expect to see a decrease in training and development activity in the coming months.

"Another sign that skills development is low on the priority list comes in the finding that only 1 in 3 managers plan to do qualifications and courses this year. This is despite research evidence that management qualifications are set to become increasingly important to individuals and their organisations over the next five years.

"In the current climate, it is natural for employers to feel some degree of uncertainty.  However, the decline in organisations developing their managers is a great concern.  If employers fail to invest in the skills needed for long-term success, the UK will find it difficult to compete on a global scale in the future."

Stakeholder response: KPMG

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David Gardner, director of public policy, said: "The global economy is clearly set for a slowdown in 2008. Not only caused by the credit crunch whose impact will now start to be felt, but the levels of growth were always going to be difficult to sustain. The three important concerns we should all have are ensuring a 'soft landing', trying to address and correct the global economic imbalances and maintaining and enhancing the sound fundamentals of the UK economy.

"A soft landing for the downturn in the property market and consumer spending appears the most likely outcome. We cannot rule out another Northern Rock style crisis to dent confidence, but it does appear that nerves have steadied and while people are more cautious, with careful watch on monetary policy and inflation (as well as fiscal policy) we should avoid the crash of 1989/90 and the resultant rash of homeowners defaulting and such a high proportion in negative equity. 

"Both in consumer and housing markets, there will be an upside to a soft landing – reduced personal debt, making credit more realistic, increasing savings and investment and making homes more affordable for first-time buyers.

"A bi-product of the credit crunch may be to help address some of the significant global imbalances where the US economy in particular has been running huge trade and fiscal deficits financed through surpluses especially from the East Asian powerhouses of China and Japan. Without major currency changes this is unsustainable and thus the falling dollar should continue to start to close the trade gap and hopefully if China allows greater flexibility for its currency, there should be some correction. 

"The same is true for the UK to a lesser extent with large consumer debts and trade deficits and a soft landing should help to constrain high-risk credit-led growth and improve our savings ration and R&D levels which would better align us with continental Europe.

"Despite this, though, the fundamentals of the UK economy remain strong but cannot be taken for granted. Increasing employment with flexible labour markets, a truly global perspective with open markets, a positive legal and regulatory framework and the world’s leading financial centre. Supported by improved public services, world class universities and a strong entrepreneurial spirit. And whereas our German partners have the lions of manufacturing as global leaders we have the leading energy, finance, mobile, mining and property companies as well as some world-class manufacturers. 

"Even our much-maligned transport infrastructure still stands up well against any international comparators as the Eddington report showed. Our leadership in tackling global poverty and climate change, our commitment to open markets and investment, free and fair trade will continue to build goodwill and help our economic wellbeing. 

"What the UK must avoid is retreating back into economic nationalism, to cut ourselves off from Europe or to discourage the best talents from across the globe from contributing to our economy. 2008 will be a major challenge, and we must plan for a slow down in growth, but also need to seize the opportunities and not take our foot off the pedal of reducing carbon emissions, opening markets, and above all being a proactive global player par excellence."

Stakeholder response: Construction Products Association

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Máren Baldauf, economist for the Construction Products Association, commenting on the Ernst and Young/Construction Products Association Activity Barometer, said: "The Barometer findings indicate that although there is plenty of activity across the industry the prospects looking forward are giving some cause for concern.  Both heavy and light side firms now anticipate that the sharper than expected downturn in the housing market will constrain sales growth next year. 

"Significantly, heavy side firms for the first time this year are more optimistic than light side firms because of the expected recovery in infrastructure activity, mainly due to a recovery in water companies’ investment and rail improvement programmes."