Economic Update 7th September 2011
Planning reforms seen as key to growth
Chancellor George Osborne and Communities Secretary Eric Pickles say they will face down critics of their plans to loosen planning restrictions. They see construction and building infrastructure as key to boosting UK economic growth.
The government says planning delays cost the UK economy £3 billion a year, and block much needed housing development, while also putting businesses off investing and creating jobs.
Opposition to planning reform comes from environmental, rural and conservation groups that fear overdevelopment.
There is also a conflict with the Coalition’s localism agenda, since elected councils will not be able to block all future development plans if reforms go through.
The Financial Times proposes that local authorities can be got on side to support reform if councils are allowed to auction off development land, and to keep more of the financial proceeds from construction activity. The FT also suggests that councils that block development could be penalised financially by central government.
http://www.ft.com/cms/s/0/4a4d7a52-d566-11e0-bd7e-00144feab49a.html
http://www.ft.com/cms/s/0/d14169b0-d598-11e0-9133-00144feab49a.html#axzz1X4dBytW8
http://www.bbc.co.uk/news/uk-14782205
Cameron takes second look at Agency Workers Directive
The new agency worker rules due to come in on 1 October are being revisited by Prime Minister David Cameron according to the Telegraph.
The new laws will give temporary staff the same rights as permanent employees after 12 weeks employment, in relation to pay, holidays and maternity provision.
It has been estimated that the changes could cost British businesses £2 billion a year with around a million workers getting benefits they do not have now. The average small business is expected to pay an extra £2,493 a year to cover the new rights. Big businesses could face an additional £73,188 annual bill.
Some predict that the new rights will hit growth and employment as businesses lay-off agency workers to stop them getting the extra benefits after three months on the job.
With UK growth faltering David Cameron is keen to avoid any measures that could act as a drag on the economy.
An EU directive sets out the basic changes for agency workers that all EU countries must bring in. However critics of the UK legislation think that the Business Department led by Vince Cable may have “gold-plated” the minimum EU requirement, meaning the new rules impose more of a burden than they need to.
If the UK does not make the minimum changes it could be fined millions by the EU.
Construction slowing
The construction industry is still expanding, but at its slowest rate for seven months according to the August Markit/CIPS Construction Purchasing Managers’ Index.
The August survey showed that sector confidence was at its lowest level for eight months and also that employment levels and sub-contractor usage were continuing to decline. Commercial construction performed best, followed by civil engineering. The housing sector continued on an earlier trend of contraction.
Sarah Bingham, Economist at Markit and author of the UK Construction PMI said, “August data signalled slower growth of both output and new orders as headwinds caused by uncertain economic conditions impacted on sector performance.
Confidence regarding future business expectations weakened to an eight-month low, highlighting concerns in respect of further potential cuts in government spending, but also a dampening of wider business sentiment…”
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8518
http://www.bbc.co.uk/news/business-14760286
Manufacturing sector shrinks
The UK’s manufacturing sector has started contracting according to the Markit/CIPS manufacturing purchasing managers' index (PMI), just published. Manufacturing makes up 13% of UK gross domestic product (GDP).
Overall new orders have declined for the fourth month running this August, and the level of production has fallen at its sharpest rate since April 2009. There has also been a slight drop in employment in the sector. On top of all of this new export business was substantially weaker than in July.
Manufacturers put these problems down, in part at least, to rising global economic uncertainty.
Rob Dobson, Senior Economist at Markit commented, “the second half of 2011 has so far seen the UK manufacturing sector, once the pivotal cog in the economic recovery, switch into reverse gear”.
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8506
http://www.bbc.co.uk/news/business-14746181
http://www.ft.com/cms/s/0/d02daa58-d47a-11e0-a42b-00144feab49a.html?ftcamp=rss#axzz1WnvgCKqx
Chamber of Commerce fears for UK growth
UK’s growth forecast has been revised down for the third time this year by the British Chamber of Commerce (BCC). It now expects the economy to expand just 1.1% in 2011, as against an earlier prediction of 1.9% made at the start of the year.
UK growth is expected to pick up to 2.5% in 2013. However the BCC anticipates that unemployment will peak at 2.62 million in late 2012.
To help the situation the BCC is calling for maintenance of low interest rates, more quantitative easing (printing money) from the Bank of England, and a loosening of planning and development rules as ways of stimulating business activity and economic growth.
BCC director general David Frost said "The government is right to reduce the deficit, but these measures must be matched by policies to stimulate growth ……. If we don't get these policies right, we risk any recovery being weak and short-lived."
http://www.bbc.co.uk/news/business-14735753