Economic Update 24th August 2011

Rise in business confidence says Institute

Business confidence is on the up for the first time in 17 months according to a report published by the Institute of Chartered Accountants in England and Wales (ICAEW) and accountants’ firm Grant Thornton. 
The business confidence monitor showed manufacturing and engineering were the most buoyant sectors, with retailing and wholesaling showing the least optimism. Even so, the report acknowledged that the impact of the ongoing public sector spending cuts could have a negative effect on confidence and growth in the future. Although most businesses seem to be doing better compared with a year ago, the report said that annual growth remains notably below pre-recession levels for most indicators.

Merlin fails to conjure extra lending for SMEs

The major banks which at the beginning of the year agreed to increase lending to small and medium sized enterprises (SMEs) are already 12% behind on the target amount they told the Treasury they would lend.
Barclays, Royal Bank of Scotland, Lloyds, HSBC and Santander pledged to lend a total of £190 billion in 2011 under Project Merlin, which was aimed at boosting private sector business growth.  Of this target figure, £76 billion was due to go to SMEs this year. So around £19 billion was due to be lent every three months. But so far this year only £16.8 billion has gone to SMEs.
The banks claim that they are making great efforts to offer credit but cite subdued demand from SMEs that are apprehensive about the strength of future orders, as the reason for the below target lending.
According to the BBC Business Secretary Vince Cable has told the banks that a failure to deliver on business lending could result in higher taxes for them. However the Times has reported that the Treasury is satisfied with what the banks have done so far, given that Project Merlin is due to run for some time.

Fall in unemployment but continuing problems for the young

UK unemployment fell by 36,000 to 2.46 million, in the three months ending in March 2011. Unemployment was 7.7% of the economically active population, down 0.1 on the previous quarter, which had also seen a drop in joblessness. 
However there was caution at the good news in some quarters with Howard Archer, chief UK and European economist at IHS Global Insight, telling the Independent, "we suspect that likely below-trend growth will mean that the private sector will be unable to fully compensate for the increasing job losses in the public sector that will result from the fiscal squeeze that is now really kicking in."
Looking regionally, unemployment rose 6,000 by in London and by 4,000 in the North East, whereas in the South East, there was a fall in joblessness of 17,000.
For those without work for under 12 months the joblessness total fell by 56,000 to 1.61 million. Whereas for the long term unemployed without work for over 12 months, the figure increased by 20,000 to 850,000, the highest total since January 1997.
Youth unemployment fell by 30,000 to 935,000 the equivalent to 20% of economically active 16 to 24 year olds.

Second slump for construction

The Financial Times (FT) has reported survey findings pointing to another downturn in construction activity linked to the drop in public sector contract work following the implementation of Coalition spending constraints.
The Balfour ABI report for the FT has identified a 40% fall in construction orders over the last year. The sector suffered in 2008 when the private sector halted many projects, but had seemed to have been recovering more recently with state sector work accounting for 40% in total of all construction spending in 2010. So the slowdown in programmes such as road building and maintenance, as well as the abandonment of initiatives such as Building Schools for the Future are starting to hit the building industry hard.

Jonathan Hook, global head of construction at accountants PwCsaid, “it is the end of the money coming through from government stimulus and no one knows if, when, and to what extend, the private sector will come back.”

Logistics sector keeps training

The Chartered Institute of Logistics and Transport (CILT) has said that 63% of the 600 members responding to a survey reported that over the past three years, their organisations were maintaining or increasing training levels against a challenging economic backdrop.
Despite these positive findings, 40% of respondents to the survey conducted in March and April 2011, did not think that the businesses employing them offered adequate training.
Ailsa Watson, project manager of Aspire, the CILT's careers foundation that commissioned the survey, says, "investment in training must be regarded in the same way as any other corporate investment.
"There should be an expectation that there will be a financial return on that investment. Even in the toughest of economic environments, time and again we see an adequate training investment resulting in business survival, and onwards to commercial profitability." 


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