Economic Update 4th January 2012

Logistics set to suffer in New Year rash of insolvencies

A  New Year hit to the logistics sector is predicted as a knock-on effect of the current economic squeeze.  

The requirement to have access to £7,700 for the first truck and £4,200 for each truck thereafter with a standard licence is predicted to threaten the viability of many haulage businesses at a time when it is difficult to secure bank finance. Restricted licence holders must have £3,100 for the first vehicle and £1,700 for each additional vehicle.

However it is businesses serving the public more directly that are predicted to be hardest hit with one in eight retailers and one in five food manufacturing, hospitality and tourism enterprises close to insolvency according to accountants RSM Tenon.  The firm went through records at Companies’ House to make this assessment.

Richard Fleming, UK head of restructuring at accountants KPMG told the Financial Times, “It’s not just high street retailers ........... With fewer goods being transported around the country, logistics providers are also taking the pain.”


GDP edges up

UK gross domestic product (GDP) increased by 0.6% in the third quarter of 2011 with construction and services performing best. However the growth estimate for the previous quarter was revised down from 0.1% to zero by the Office for National Statistics.

Commenting to the BBC James Knightley from ING said, "The sovereign debt crisis is really hurting [UK] businesses. We could turn back into recession in the next couple of quarters……….Early next year is key, when the debt crisis could come to a head - any [potential] credit crunch would be a massive constriction on the economy."


Slight contraction in manufacturing

Compared to previous months UK manufacturing was relatively stable in December, with only a slight contraction in output according to the Markit/CPS purchasing managers' index. The December results were better than expected.

Although levels of new work fell for the sixth month in a row, where businesses reported increased output this was generally linked it to higher foreign demand and efforts to clear backlogs.

Perhaps ominously, the survey showed that overall the fourth quarter of 2011 saw the sharpest fall in manufacturing since the second quarter of 2009.


Retail and casino banking to be split

High street retail banking is to be separated from more risky investment banking after the government agreed to accept most of recommendations made by Sir John Vickers in his report looking at the reasons behind the 2008/9 credit crunch.

By ring-fencing retail banking from investment business, it is hoped that the public and ordinary businesses customers will not be hit hard if the higher risk investment arms a bank gets into difficulties in the future.

Business Secretary Vince Cable says that laws will be passed before the next General Election so that the Vickers changes will be implemented by 2019.

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