Although no one is talking openly about ‘green shoots’, many commentators are now cautiously suggesting that the recession may have bottomed out and we should be preparing for the upturn. But what will ‘the upturn’ look like and exactly how do we prepare for it?
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It is important to be prepared for how the UK will look after the recession and also how Brighton & Hove will look. Both nationally and locally the decline in consumer spending that is normally associated with recessions has not been as marked or rapid during this one compared to the last one in the 1990s. Big ticket sales (and house prices) have certainly suffered but in places like Brighton & Hove consumer spending has held up reasonably well so far and retail sales consistently outperformed the national benchmark in the first quarter of 2009.
However, given the record levels of debt that the consumer is carrying we are unlikely to spend our way out of recession because consumers will want to restore their savings levels, which have fallen into a parlous state (see earlier story).
Nevertheless despite variable retail sales many big retailers and wholesalers have let their stock levels decline dramatically in response to the recession and they will have to replenish their shelves sooner rather than later. This could give a boost (albeit temporary) to the recovery but big ticket sales are likely to languish in the doldrums for some time to come.
Some have suggested that the UK could benefit from an export-led recovery and weak sterling makes UK manufactured goods look very attractive. But about 60% of UK exports go to the European Union and we would have to wait for EU countries to recover before we can significantly increase exports to this market. That prospect seems some way off but the weak pound might also help the UK tourist industry, which is expected to benefit from overseas visitors this summer.
So this too could be a boost (albeit temporary) to the recovery unlike big receipts from the business & financial services sector, which are almost certainly a thing of the past. We are unlikely to see a return to anything like the levels of income generation from the City (financial centre) enjoyed over the past decade (a bubble that burst - see earlier story). London still remains the most popular European City for inward investment but, hampered as it will be by increased regulation, banking is likely to grow at a much slower rate although other key parts of the financial services sector such as asset management and insurance may show stronger growth.
Given the fact that 30% of Brighton & Hove's workforce is employed in business & financial services it is surprising that we have not seen greater loss of local employment in this sector. We have not had any large scale lay-offs although there is still time for them to emerge and Legal & General’s announcement that they will be reducing their workforce by 10% is worrying (see earlier story).
So taking the best of some poor options it looks as though the UK may be relying on exports and investment when the recovery comes, but these are unlikely to generate the 3% growth rates of the past 10 years which the regional development agency’s economic strategy has committed to delivering over the next 10. Indeed many commentators are suggesting that growth, when it finally returns, will be closer to 2% for a protracted period of time.
Lending will be a limiting factor on growth. A recent survey from the Engineering Employers’ Federation showed that 45% of firms had seen an increase in the cost of their finance and only 4% had seen an improvement in credit availability in the latest three months. The government's £125bn of quantitative easing was intended to boost lending but it may be proving slow to take effect.
The International Monetary Fund (IMF) has produced a comprehensive analysis of past recoveries from recession, which shows that the more rapid the entry the sharper the first year of recovery. However, it also shows that upturns from recessions that have their origins in a financial crises tend to do so without credit being available. After these recessions it takes an average of seven quarters after growth in the economy has stopped being negative before the growth of credit turns positive.
What this might mean is that the economy in the recovery phase will be a very different beast with any spending financed out of income and savings rather than borrowing. Cash-generating businesses will benefit and thrive at the expense of credit-hungry ones.
Locally employment opportunities in business & financial services and the public sector are likely to contract markedly at a time when we must generate an additional 8,000 jobs over the next decade just to stand still (see earlier story). Green industries offer a ray of hope for job growth but many locations in the UK (and the world) are hoping to cash in on this comparatively new sector (see earlier story).
The creative industries, particularly digital media, are also a local strength that should be nurtured, but there are worries about being able to supply the space that they need to expand and grow.
As a nation and as a city we will have to be nimble and light on our feet to take advantage of new opportunities that will arise from the changing, post-recession landscape.
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