Threat of double-dip recession fades
The UK economy seems to have sidestepped the dangers of a double-dip recession but still faces many risks, a new study has claimed. According to the British Chambers of Commerce's latest quarterly survey, the economic upturn is on course. On the downside, however, the survey also found that business investment is declining, while job losses in the manufacturing sector continue to climb. The survey, which took in some 5,000 British firms, revealed that the service sector, which comprises the largest segment of the economy, enjoyed an improvement in both domestic and overseas sales during the first quarter of the year.
Manufacturers, though, experienced stagnation, with sales barely positive and orders still negative. Employment over the last three months in manufacturing recorded a large fall, from +3 in the fourth quarter of 2009 to -16 in the first quarter of 2010. Worringly, investment in plant and machinery, and cash flow are still negative across both sectors, the BCC said. David Frost, the BCC's director general, described the results as mixed but containing some positive features, such as the service sector's improvement and the relatively strong export balances for manufacturers. Mr Frost said: "Businesses are showing resilience despite difficult and uncertain trading conditions. Confidence is building, and the government must nurture this with well-thought out policies that support business growth and job creation. "Special attention must be paid to bolstering our exports in goods and services, which will help rebalance the economy away from an over-reliance on debt and the public sector." Mr Frost urged the post-election government to avoid additional business taxes that could stifle recovery, arguing that the 1 per cent hike in employers' National Insurance Contributions, planned for 2011, should be scrapped and replaced by a 1 per cent rise in VAT.
The BCC also wants to see a three-year moratorium on any new employment legislation. David Kern, the BCC's chief economist, added: "These results support the view that GDP growth stayed positive in Q1, but the recovery is set to remain fragile and sluggish. While the upturn in the service sector is gradually gathering momentum, the manufacturing sector is still struggling to enter the recovery phase." Mr Kern highlighted the deterioration of investment levels in plant and machinery as a cause for concern, saying that, unless the sharp declines in capital investment are reversed, the UK's productivity will fall further and the economy will lack the capacity to meet growing demand when the recovery gains momentum. Negative cash flow balances suggest many businesses are still facing serious financial pressures, which are due more to lack of demand rather than to reluctance on the part of the banks to lend. Mr Kern concluded: "Whatever the outcome of the election, a new government must produce a more credible medium-term plan for cutting the country's huge Budget deficit and reducing spending. This will strengthen Britain's credit rating, make it easier for the Bank of England to keep interest rates low for a prolonged period, and underpin the recovery."
Recession could be Caused by US Default
Chief of IMF Voices Concerns over US Default Causing Recession
She was being interviewed for a US TV show when she said that if they do default, then it could cause 'massive disruption the world over'.
If no agreement is reached to increase the US's debt limit, the US Treasury will begin to run out of money and a recession will be imminent.
The leaders of both the Democratic and the Republican parties held talks on Saturday, the first of their kind to take place in several weeks.
When interviewed by the NBC programme Meet the Press, Christine Lagarde said that American would have to raise their debt ceiling before the deadline
She was reported as saying that the uncertainty could cause severe problems, not just in the US around the world. Not only would it cause disruption, but it could also lead to another recession.
World Bank News
Jim Yong Kim, the president of the World Bank, has also issued warnings about the potential consequences of the situation and the threat of recession. He has expressed his concern that the US is only a few days away from a potentially very damaging situation.
The bank's president was eager for the policy makers in the US to reach some kind of agreement over the debt ceiling before the deadline warning, that a failure to do so could be a 'disastrous event' and cause global recession.
He expressed his concern over a potential drop in growth and confidence and a rise in interest rates, and he had particular worries about the developing world.
International finance ministers don't believe that the US will default, but there is a general uneasiness about the potential impact of the crisis and the looming threat of recession.
After the White House rejected a deal for a short-term increase to the borrowing limit, it is now a race to reach an agreement. The partial shutdown of the US government has been in place since they failed to pass a budget and has meant thousands of federal employees have been sent home.
The shutdown could be costing the government dearly, with an estimate from the US Treasury Secretary suggesting that it could be shaving 0.25% off economic growth with every week it continues.
Written by David Archer of Circle Square - Financial Jobs London / Accountancy Jobs London
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Is the Future for the UK Economy Looking Brighter?
Is the UK Economy Finally Improving?
Finally some good news for the UK Economy? Some positive results were presented in the latest survey of Chief Financial Officers by Deloitte this month. The regular survey includes a range of opinions from a leading panel of CFOs in the UK's corporate sector and is valued by many as a benchmark of business confidence and economic recovery. There were a number of key points in the report.
Greater Confidence in the UK Economy
Greater Confidence and Reduced Uncertainty Those interviewed said that financial and macro-economic uncertainty had reached its lowest point since the middle of 2010. Additionally, the respondents also had greater confidence since the last monthly survey that the eurozone would stay intact.
Access to Finance is a Crucial Factor for the UK Economy
Another positive highlight was about access to cheaper lending and in greater amounts, thanks to increased credit being extended by banks and building societies. This was markedly higher than at any point since the survey began in 2007 and is a result of factors, including increased business confidence, less bad debt than expected and the success of the government's Funding for Lending (FLS) scheme.
The International Situation also impacts the UK Economy
A better situation in many international economies was also flagged up as a positive sign. This is being driven by growth in emerging markets along with escalating demand in the Asia-Pacific and US regions. This is benefitting UK exporters and those with exposure to overseas markets. Many are shifting their business operations to more expansionary strategies. This has also led to a slow but steady move away from the climate of total cost control. However, those companies which are primarily UK-focused (defined by having less than 30pc of their revenue generated through exposure to overseas markets) remain markedly more cautious about domestic growth and business prospects.
Confident Sectors
Data released by the British Chambers of Commerce, via their QES survey (a Quarterly UK Economic Survey that aggregates the responses of over 7,000 UK businesses), shows that business confidence is particularly increasing in the services and manufacturing sectors.
Contributory Factors assisting the UK Economy
This confidence boost is judged to be caused by a range of factors, but predominantly greater levels of lending from banks. Recent date from the BoE shows, however, that banks still aren't widely lending to SMEs and fast-growth start-ups and entrepreneurs have been looking for alternative finance sources such as peer-to-peer lending and crowd financing, amongst other sources. There is still access to alternative and start-up funding through government schemes such as the Start-up Loans fund for young entrepreneurs and loans extended via the Regional Growth Fund scheme, but the signs do point to more innovative solutions being embraced by the SME sector.
Written by Niraj Joshi of Circle Square Talent – Finance & Accountancy Jobs London.
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