One year out of recession, it’s mixed fortunes for UK plc

Wednesday, January 26, 2011 | Posted by: Fiona Cullinan
Categories: Economy | Tags: business, recession, economy, finance, UK, retail, GDP, inflation, recovery, Private Equity, BCM, PE Barometer, double dip, Business Confidence Monitor

Today is the first anniversary of the UK economy emerging from recession. But while preliminary data for Q4 2010 estimated a 0.1% rise in GDP, yesterday’s figures showed a surprise contraction – is it a blip caused by bad weather or a sign of the economy stalling amid recent austerity measures?

A year ago today, the UK crawled out of recession. The economy had been in negative territory for the longest period since records began in 1955 – six consecutive quarters – and was one of the last major economies still in recession.

But recovery has been slow with ongoing fears of a double-dip recession – as our voxpops with business leaders in Q3 2010 shows.

One year on, how have things changed?

The ICAEW/Grant Thornton UK Business Confidence Monitor (BCM), released in November, showed a sharp fall in business confidence with UK businesses lowering expectations for 2011. This suggested that economic growth would be slower than forecast with companies reluctant to invest and back the recovery.

However, UK forecasts had been starting to pick up. This month, Grant Thornton’s Private Equity Barometer showed clear signs of optimism in terms of increased deal volumes, new investments and portfolio performance.

But yesterday’s GDP figures came as a shock with the drop blamed on bad weather in December affecting a number of major industry sectors, including construction and retail. There were also worries over the UK’s ability to withstand recent austerity measures.

January also saw a rise in VAT from 17.5% to 20%, and inflation becoming a growing concern for the Bank of England, placing an upward pressure on wages and workforce costs.

The squeeze is on…

According to The Guardian, UK retail has been particularly badly hit, posting the worst December sales figures since 1998.

Barry Knight, Head of Retail at Grant Thornton UK LLP, said:

“The Christmas season provided a mixture of fortunes for the retail sector with the snow and looming VAT increases having a significant impact on trading patterns. [The] announced ONS results with a 2% increase in sales values across the sector as a whole may look alright on the surface but, relative to the rest of the year, not particularly sparkling and we need to look behind the figures.”

One place to look is suggested in our UK retail survey, which revealed complacency in the sector and the need for business model change.

You might also find these posts useful:

* Private Equity Barometer 2011: Lower valuations to boost UK private equity deals
* Who’s winning the global race to economic growth? (Infographic)
* Weaknesses and opportunities in UK retail