DANIEL LEE OCTOBER 2015 BSB 2015 CONFERENCE THE CURRENT UK ECONOMIC CLIMATE FOR BUSINESS.
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Transcript of DANIEL LEE OCTOBER 2015 BSB 2015 CONFERENCE THE CURRENT UK ECONOMIC CLIMATE FOR BUSINESS.
DANIEL LEEOCTOBER 2015
BSB 2015 CONFERENCE
THE CURRENT UK ECONOMIC CLIMATE FOR BUSINESS
UK RECOVERY CONTINUING IN A TRICKY GLOBAL CLIMATE
After a slow start, the UK is finally enjoying steady growth…
● But income per person has only just surpassed its level in 2007
2007 2008 2009 2010 2011 2012 2013 2014
90
92
94
96
98
100
102
104
106
108
UK GDP total and per capita
Total GDP GDP per capita2008Q1 = 100
…against a tricky global backdrop
Ghost cities in China - Queues for the ATM in Greece
What does this mean for the UK?Good news - lower commodity prices
20
40
60
80
100
120
140
Global commodity prices (S&P GSCI indices)
Energy Food/agricultureJan 2011 = 100
…Bad news - trade and manufacturing haven’t contributed much to the recovery
Trans
port
equip
men
t
Baker
y & fa
rinac
eous
All foo
d, d
rink
& toba
cco
Other
All man
ufac
turin
g
Chem
icals
Rubbe
r & p
lastic
s
Compu
ting
& elec
tronic
s
Met
als
Textile
s
Electri
cal g
oods
Mac
hiner
y
Printin
g, p
aper
& w
ood
Pharm
aceu
ticals
Coke
& pet
roleu
m
-30
-20
-10
0
10
20
30
40
50
Growth in UK manufacturing sectors since Jan 2008 (%)
Honourable exception!
UK DOMESTIC AND CONSUMER RECOVERY LOOKS MORE ROBUST
Feedback to surveys & our Trades Association Council positive in consumer-facing sectors
UK consumer demand still looks strong
● “Barring any shocks, there is no reason why the consumer recovery should stall” (BRC)
● “boost from lower inflation to motorists… is clearly raiing their ability and confidence to spend” (SMMT)
Transport also upbeat
● “On balance, 25% of members expect the UK economy to improve in the next six months” (BVRLA)
● “Members.. Anticipate the strong positive growth in activity levels to continue in Q3 2015” (FTA)
Financial services strengthening
● “noticeable pick-up in activity in recent months” (CML)
● “definitely an increase in merger and acquisitions activity” (BIBA)
Mixed feedback from export-orientated manufacturing
● “The outlook for food and drink manufacturers sounds positive” (Food & Drink Fed)
● “UK apparent demand… in the second quarter of this year has been disappointing” (UK Steel)
● “Significant weaknesses in the machinery industry for reasons that we can’t entirely explain” (MTA)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-100
-80
-60
-40
-20
0
20
40
60
80
CBI surveys: Are you more, or less, op-timistic than you were three months ago
about the overall business situation?
ITS (manufacturing) SSS (business services)
SSS (consumer services) DTS (distribution services)
FSS (financial services)
% balance
Signs of life in real wages an encouraging sign for sustainability of consumer spending growth
● Sustainable wage growth crucial now that unemployment is almost back to pre-crisis levels
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-1
0
1
2
3
4
5
6
Inflation and earnings summary
CPI Core CPI Average regular earnings (3m-ma)% yr/yr
But cheaper energy windfall spent on one-off purchases, while food sector recovery muted…
Jan-
12 Feb Mar Apr
May Ju
n Jul
Aug Sep Oct
Nov Dec
Jan-
13 Feb Mar Apr
May Ju
n JulAug Sep O
ctNov Dec
Jan-
14 Feb Mar Apr
May Ju
n JulAug Sep O
ctNov Dec
Jan-
15 Feb Mar Apr
May Ju
n Jul
Aug
-6
-4
-2
0
2
4
6
8
10
12
14
Growth in retail volumes by sector
Food stores Clothes stores Household goods stores% yr/yr (3m-ma)
… and competition is intense – our surveys suggest price wars have further to go
Jan-14 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-15 Feb Mar Apr May Jun Jul Aug Sep
-30
-20
-10
0
10
20
30
40
50
-17
CBI retail survey: Expected trend in Grocers' selling prices over next three months
% balance (3m-ma)
Main risks to the consumer outlook – productivity/wages and interest rates to rise…
1995
1998
2001
2004
2007
2010
2013
70
75
80
85
90
95
100
105
UK output per hour worked
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Mortgage interest rates
Growth (lhs) Mortgages (outstanding)%
Key business concern: tightening labour market and skills shortages
Many signs of skills shortages emerging and jobs growth slows● “We have seen an end to the run of expansion of employment in our
sector that goes back to the start of our survey in March 2011” (MTA)● “We are therefore continuing to see employment growth within the
finance sector and believe we are moving towards a period of full employment.” (Jersey Finance)
● “Pressure on drivers for many firms is acute” (RHA)● “Skills shortages in our sector remain a threat with demand exceeding
supply for key pinch-point skills.” (CECA)● “a slowdown in employment growth in our sector is expected… Our
sector needs skills that can’t necessarily be taken from the unemployment pool.” (FDF)
● “Wages increases are accelerating and there are many scarcities across the skills set for the sector.” (TechUK)
● “members reported that wages have been the key driver of inflation in the sector” (CPA)
● “Where pay reviews have been conducted in the last quarter, the resulting average (mean) increase in basic pay was 2%” (BPIF)
But pay growth still restrained in many places● “still a tendency to freeze pay for drivers, workshop staff and warehouse
staff.” (FTA)● “There has been an exit of a number of experienced people from our
industry, and recruiting talented people is tough… Wage reviews without merit are a thing of the past so inflationary pay rises are modest” (BIBA)
● “For those companies still expanding and working flat out, settlements are typically 2%... several companies with continued low sales continue to offer no increase, particularly to management staff.” (BCC)
0
10
20
30
40
50
60
Concern among firms about availability of labour
Manufacturing (skilled labour as a constraint on output in the next three months)Services (shortage of professional staff as a constraint on future business)Services (shortage of other staff as a constraint on future business)
% of firms
Summary: households and businesses to drive UK growth – main risks are global
• Slower economic growth in China weighs on other EMs & world growth
• Another downturn in Eurozone fortunes
• Uncertainty ahead of EU referendum weighs on investment
• Productivity recovery fades
• Strong recovery in productivity growth supports earnings growth
2013 2014 2015 2016-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
CBI UK growth forecast
Household spending Government consumption
Fixed investment Inventories
Net trade GDP
Per
cent
age
poin
ts
Daniel LeeSenior economist, CBI
e: [email protected]: +44 (0)20 7395 8111
CONTACT US
www.cbi.org.uk
linkedin.com/company/cbi
@CBItweets