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The mood has darkened within the business community recently. This has been particularly striking on my travels meeting companies of all shapes and sizes, up and down country

The global economy has faced a number of shocks, including the Japanese tsunami, uncertainty around the Eurozone sovereign debt and the recent wrangling in the US over the debt ceiling. Add into the mix soaring commodity prices and squeezed family budgets and it’s not surprising that confidence is in short supply.

The big question is whether these shocks represent a soft patch that we’ll recover from or whether they will blow us off course significantly. It’s not an easy question to answer. From what businesses are telling me, the impact of the tsunami on supply chains is starting to ease. Energy and some commodity prices are coming down from their Spring highs, which should help hard-pressed businesses and consumers.  

But the biggest risk to the recovery remains the Eurozone. The measures already agreed are an important first step, but much of the detail of the package is still unclear, and we can’t yet be sure we’ve found a comprehensive solution that will draw a definitive line under the issue.

All of this has taken its toll on the UK. We’ve seen disappointing rates of GDP growth over the first half of this year. Consumers have taken a real hammering, as inflation, especially in food and petrol, have whittled away spending power. The manufacturing sector, which had been the vanguard of the recovery, has also taken a hit. Our recently-published Industrial Trends survey reveals a slowdown in orders and output growth, which has led to a fall in sentiment and firms reappraising their business plans.

But we should be wary of reading too much into recent data. Second quarter GDP figures were distorted by special factors, such as the tsunami and the extra royal wedding bank holiday.

We’ve repeatedly said over the last two years that the recovery is going to be a long hard slog. As such, we are forecasting growth of 1.3% for 2011, compared to 1.7% previously, with the economy on a slightly firmer footing by 2012, with GDP growth of 2.2%, unchanged from our May forecast.

In terms of what we can do to keep the recovery on track, the Government needs to make the UK as attractive as possible to investors so they have the confidence to build much-needed infrastructure.  Businesses need to be bold about hoovering up exports in far-flung corners of the globe and we need to pay attention to the army of mid-cap companies that have real growth potential. There’s no doubt that serious headwinds remain, but with hope and a fair wind we hope to successfully navigate these choppy waters and find ourselves on course for modest growth.

 



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Written by John Cridland   
Friday, 19 August 2011 12:21
Last Updated on Friday, 19 August 2011 11:21
 

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