Economic review of the year: Business urged to maintain progress
PUBLISHED: 13:51 31 December 2013 | UPDATED: 13:51 31 December 2013
As Britain’s economy escaped a much feared double dip – and a triple dip– recession in 2013, Press Association city writer John-Paul Ford Rojas investigates the economic picture for the year ahead.
Companies must support employees, says CBI chief
Firms face a challenge to make sure economic growth this year improves workers’ pay after a “prolonged squeeze”, a business leader has said.
John Cridland, pictured, director general of the CBI, said recovery is taking root and businessmen and women have a “spring in their step” compared with a year ago.
In his new year message, he said: “Businesses must support employees in every part of the country to move up the career ladder, while also giving a helping hand to young people taking their first tentative steps into the world of work.
“As the financial situation of many firms begins to turn a corner, one of the biggest challenges facing businesses is to deliver growth that will mean better pay and more opportunities for all their employees after a prolonged squeeze.”
Mr Cridland said it was positive news that jobs were being created, adding it was shaping up to be a full-time recovery with the majority of new jobs being permanent.
For the first time since the start of the recession, 2014 will see most firms increasing the size of their workforce, boosting their graduate intake and the number of apprentices they take on, he said. “The good news is that wages will pick up in the year ahead as growth beds down and productivity improves.
“But there are still far too many people stuck in minimum wage jobs without routes to progression, and that’s a serious challenge that businesses and the government must address.”
Mr Cridland spoke of the importance of skills, calling for a Ucas-equivalent vocational system to help raise awareness and parity of esteem for alternative routes to higher skills. “If 2013 was the year that business trust took a hammering on a range of issues from corporate taxation to energy prices, then 2014 must be the year that business leaders take action to rebuild that trust,” he said.
Britain’s economic recovery risks running out of steam unless business picks up the baton from the household spending surge that has so far powered the upturn, experts warn.
An unexpectedly dramatic improvement this year has been fuelled by consumers but economists say that corporate investment and exports must soon begin to take over as the main drivers of UK expansion.
The first half of 2014 could prove critical amid concerns that household spending is likely to come under threat from persistent low wages.
It follows a year in which the pace of growth has taken economists by surprise. There has been a dramatic change in mood since chancellor George Osborne delivered his Budget in March.
Official figures at the time painted a grim picture as the forecast for 2013 gross domestic product (GDP) growth was halved from 1.2pc to 0.6pc. The Autumn Statement earlier this month reversed the cut, upgrading the figure to 1.4pc and leaving many forecasters predicting the actual result will be higher.
A number of independent experts were even more pessimistic at the time of the Budget. Consultancy Capital Economics had pencilled a GDP rise of just 0.2pc over the course of the year, but it now expects to see an improvement of 1.5pc.
In March, many experts were also worried that the first quarter from January to March would see a second successive period of decline in the economy after a poor end to 2012 –resulting in an unprecedented triple-dip recession.
But it never happened, and instead, newly-revised figures show the first three months of 2013 saw GDP rise by 0.5pc, improving to 0.8pc in the second quarter and 0.8pc again in the third.
Meanwhile, the second “dip” since the start of the downturn in 2008 was revised away by official figures meaning there was neither a “double dip” nor a “triple dip”.
One reason for the overturning of economists’ expectations may have been that they had already factored in the likelihood of continuing international headwinds – along the lines of the earlier eurozone crisis – buffeting growth.
In addition, few had anticipated the resilience of the jobs market despite the poor state of the economy, or the dramatic impact of government initiatives boosting confidence in the housing market.
Economists also seemed not to have appreciated the resilience of the British consumer, who has felt confident enough to cut back on savings and spark the recovery into life.
However, the spending spurt is not seen as a sustainable long-term basis for recovery, especially as below-inflation wage growth means real pay is falling, squeezing family incomes.
In a recent speech, Bank of England chief economist Spencer Dale said the recovery to date had been largely on the household side – unsurprising since businesses would want to see a sustained pick-up in demand before having the confidence to expand.
“But the durability of the recovery will depend on the baton of growth being handed over to the corporate sector, whose spending and investment will help to foster stronger growth in productivity and real incomes,” Mr Dale added.
Samuel Tombs, UK economist at Capital Economics, said: “We should be getting to the point in a typical recovery where we’d see business investment pick up at this stage, given how far it has fallen. It’s still well below its pre-recession level.”
An improvement could be vital if consumer spending does tail off – with retail sales already starting to look shaky and stores banking on the Christmas period to shore up their balance sheets.
Mr Tombs said: “There could be a weak period of a quarter or two if other parts of the economy don’t pick up.”