Monday, 25 July 2011
Summertime and economic woes
Politicians both in the Assembly and Westminster are back in their constituencies. But unfortunately they can’t pack up the country’s problems in their kit bags and take it with them. Oh, if only it was that easy.
No, there is a real world out there. It may be summer but the economic weather is not shining. Today, Lloyds TSB report that fewer than a fifth of businesses plan to invest in growth within the next six months.
This lack of confidence will certainly hold back any hope of recovery and may indeed indicate that unless the Chancellor has a dramatic rethink in his policy, the economy will hit the buffers.
The report indicates that business is holding back on investment decisions because of rising costs and weak domestic demand.
But it’s chicken and egg - a lack of business investment damages further the prospect of recovery and will produce even slower growth.
But tomorrow is the real test, for that’s when the GDP figures are produced.
Many economists are predicting that these figures will do nothing to raise the nation’s spirits. Some economists are even predicting the economy slipping back into negative territory.
The story of growth in the first quarter of the year was that of an insignificant increase, the second quarter may also turnout to be just the same. Optimism, I think not, a pancake would be less flat.
The pressures on the economy are numerous and varied. These include public spending cuts and the still high inflation figures. Both of which have led to weak consumer spending and a slowing down of the housing market.
The euro zone crisis may hit UK exports, 40 per cent of our trade is with Europe. The trade figures for the second quarter may show a falling off in exports.
But if America sneezes its well known that the rest of the world catches pneumonia. If negotiations fail between Obama and his Republican controlled congress over the budget, then the US could default on its borrowing for it will have run out of cash to pay its creditors. Result, chaos in global financial markets.
So these many factors cause real concern for our economy. Osborne needs to devise a plan B, and pronto.