New figures reveal a slow down in UK economy
Members of the UK200Group of independent accountancy and law firms have today commented on new official economic growth figures, which show a slowdown in the UK.
According to a new survey by the British Chamber of Commerce key indicators, such as sales and orders, business confidence and investment, are currently low across the UK.
Their research is backed up by last week’s official figures, which showed that industrial output fell 0.5% in February from a year earlier – the most significant decline since August 2013 – adding to growing concerns that the country’s economy has slowed in the first three months of the year.
Meanwhile, a separate report from Barclaycard has found that consumer confidence has also slowed.
Jonathan Russell, partner at UK200Group member firm ReesRussell, said:
Report after report is published talking about reducing growth, reducing confidence and low productivity as if it is some great shock. It is very simple in the capitalist economy the entire system is based upon consumer spending and consumer spending can only be driven by a desire to spend and the availability of money. In the modern world there are three potential consumers:
1. Government – well we have been and continue to be in a period of austerity which has two elements a) government spends less and b) government collects more in taxes. Predominately to date our government has concentrated on squeezing expenditure but over the last two years we have also seen increases in tax.
2. The consumer, you and I, we can spend in a variety of ways a) from income – well increases in income have been minimal and certainly have lagged behind cost increases b) from increased borrowings – generally money has not been as available as it was and more people are trying to reduce borrowings than increase them and c) from savings – there is an incentive as returns are so low to spend savings but with deflation in many of the expenditure areas, especially capital purchases, the temptation is to delay in case the price goes down.
3. Corporate capital investment – companies only invest when they can see a potential return on that investment. Investment normally will result in increased capacity or margins but again you only invest if there are customers and as neither group 1 or 2 are spending there are no customers.
The slowdown in China and other overseas markets means that we cannot continue to rely upon demand there, so it is no surprise that growth is slowing because customers are not spending.
If we take the view that there is no increased credit (borrowing) available to the customers, then the growth can only be maintained at a modest organic growth level, which historically has been 2.5% to 3% or about 1% ahead of inflation. With the Bank of England target to keep inflation below 2% real, growth can only be slow and steady.