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Friday, 2 January 2009

Economic outlook 2009 - many different view points


An article released yesterday in the Financial Times shows the extent of the economic uncertainty that exists at the moment.

The paper sent a survey to leading UK economists asking broad questions about the outlook for the economy, employment, house prices, government spending etc.

The paper printed the responses from the various experts, and in typical economist fashion they came up with very different views for the economy.

For example, when asked whether 2009 would show the first "green shoots" of recovery in the economy, there was an almost even split between those answering yes and those answering no. Looking closer at the responses given the reasons for the responses were also very different.

Often the survey also seemed to suggest different interpretations of various economic terms led to different survey responses. For example, some respondents defined economic recovery as recording positive growth and others thought it meant seeing a return of trend growth. These are significantly different with the later being much harder to achieve.

This article has helped to confirm that we are entering a very uncertain time. I remain hopeful that we will see the first signs of recovery before the end of the year, but so much could happen to put this out of reach.

You may have to register with the FT web site (for free) but its worth having a read of this article.

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Tuesday, 6 May 2008

Jobs and the economy in 2008 - an update

It may seem like the slowdown in the world economy is not having an impact upon the jobs market in the UK. This is probably true for now, but this doesn't mean it won't.

The first people who are likely to lose their jobs in the current slowdown are those working for the big banks. Another big bank, UBS, announced 5,500 worldwide job cuts this morning. These jobs cuts will be made over the next year through a process of redundancies, fewer job created and natural wastage. All in all it is estimated that banking jobs and those jobs supporting the banking sector will fall by between 20,000 and 40,000 in central London alone.

Wider job losses are likely to follow soon after. The next groups to suffer will be those working in the housing market. With fewer housing transactions there will be less work for estate agents and house builders.

Next as the housing market slows and as the price of day to day living increases, people are likely to be spending less at the shops. Retailers have already started to see sales falling in March and probably in April. Some retailers will go bust and jobs will be lost.

Jobs will gradually be lost from the wider economy. As activity slows there will be less business to do and less need for additional staff. Tighter margins will mean that cost saving measures will be necessary for many businesses, including cutting headcounts.

One upside is that manufacturing may fair slightly better than it has done in the recent past. The weak pound should help to make British manufacturing more competitive, helping to support manufactured exports. However, with the world economy slowing and Britains export partners suffering this is not guarenteed.

Although the labour market has remained resilient in the first few months of 2008, expect to see unemployment start to rise in the next few months. We are not going to see unemployment levels at a level comparative to the early 90s, but it is going to be quite unpleasant for many.

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Sunday, 11 November 2007

Things not looking up for next year

Some of the third quarter figures from the United Kingdom and the United States looked fairly positive. In particular the employment and the GDP growth figures looked pretty good without any real sign of the current credit crisis having a wider impact on the wider economy. However, don't be fooled the downturn is coming in both the UK and the US and very likely in the EU.

Early data from Q4 suggest that activity in both manufacturing and services has been slowing down in recent months. The view on the high street is that the consumer is losing confidence and are more than likely to put the breaks on spending - particularly as they have few savings to cover them over the slowdown.

The financial sector is far from over the worst of the sub-prime mortgage crisis, with a number of big banks still to declare just how much exposure they have had. This sector should expect more bad news, job losses and a much reduced pool for the Christmas bonus period.

The housing market is unlikely to see significant price falls at a national level but certain locations will see prices drop.

Therefore get prepared for next year, people will be losing jobs, wage growth will come under pressure and nothing will feel as secure. Make sure you shine and work and that your boss understands that to lose you to save money in a downturn is a bad move over the longer term. Things should get back to normal come the end of 2008, don't get stung in the meantime.

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Sunday, 19 August 2007

Article 1 - Tough times 2008

On the surface all is looking very rosy for the UK labour market if you’re looking for a job. Despite a huge inflow of migrant workers since the enlargement of the European Union the number of people claiming unemployment benefit has consistently remained below the one million mark in the last two years and has fallen by over 100,000 in 2007.

Nevertheless cracks are starting to show in the economy. Interest rates have risen five times since July 2006 and are likely to rise one more time by the end of the year. Higher interest rates are likely to hit both consumers and businesses alike as debt repayments become even more of a stretch. It should be noted that increases in interest rates take about a year to feed through to the economy so get ready for last years rate rises to start to hit!

Other weaknesses are showing. The slowdown in the US economy has been going on for most of the year without major consequences for the UK. The recovery in the major EU countries has helped to buffer the reduction in US demand for UK exports. However, the EU recovery is starting to look short-lived. The Italian economy posted very weak growth figures in the second quarter of year, whilst higher European Central Bank (ECB) interest rates are starting to hinder Germany and France.

Nevertheless on the surface it would seem that the slowdown is not having much of an impact on people’s day-to-day lives. Last week’s financial market chaos would have been a big headache for those working in the City of London or those with large share portfolios, but that’s a minority of the country.

The financial chaos should however start alarm bells ringing. It is not yet clear how the current mess in the international financial markets will play out, but if this turmoil continues then the cracks in the economy could well become holes for jobs to fall through. The financial crisis has exacerbated problem – few had been predicted that the United States could potentially move into recession until the events of last week.

It seems unlikely that the UK will suffer as much as the US. There are no credible analyst suggesting that the UK will enter a period of recession, but as the economy is squeezed by higher interest rates and as chaotic financial markets hit business confidence there will be those that will lose their jobs.

The first possible group to see job losses will be those working in the financial and business services sector in the City of London. Initial estimates had suggested that job losses in the City are likely to number a few thousand, but this number is likely to be revised upwards. The impact of this will be relatively limited to the London area.

The next sign to watch out for is a slowdown in consumer and business spending. With the financial markets looking wobbly and with higher debt repayments businesses will reduce their spending on goods and services, and also on headcounts.

Uncertainty in the financial markets leads to uncertainty in the business environment. Plans to invest will be hit as uncertainty increases the risk that they may not be able to afford the repayments in the future.

A slowdown in consumer spending is likely to follow. Higher interest rates will increase the cost of consumer debt repayments, primarily mortgages. However, this is likely to have a limited impact according to the Bank of England.

Consumer spending will also be constrained by the reduction in business spending. As businesses reduce spending employment growth will slow as will wage growth. With less money in their pockets the consumer will stay at home, rather than spending on the high street.

With business spending less on goods and services, those that supply those goods and services will have a reduction in turnover. With consumers spending less on goods and services these suppliers will also see reduced turnover. Lower turnover cause firms to fold or reduce costs; inevitably job cuts will be part of this process.

So when will this all come to a head? Most analysts suggest that 2008 will be the crunch point when the various factors come together to produce an economic slowdown. Expect to feel the pinch wherever you work, there are unlikely to be many sectors that don’t see an impact.

With this warning in hand I would suggest knuckling down and making sure your boss realises that you’re indispensable, even when business is bad! 2008 is going to be a tough year try to limit the suffering.

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