We all know that, like most of the rest of the world, the United Kingdom economy is in rough shape. It’s facing at least ten years of readjustments as it starts to turn toward increased exports rather than consumer spending, which has been the focus for some time. This is the conclusion of a recent report from the Ernst & Young Item Club – the group responsible for accurate economic forecasting in Britain.
Firms in the United Kingdom have relied on domestic consumers but they will have to start looking at customers in overseas markets to meet their current goals. Chief economic adviser Peter Spencer said that there had been, “a decade of relying on the domestic consumer.” The report went on to say that economic growth in Britain would have a tough time even reaching 1% for 2010. These are very poor numbers compared to the previous ten years.
Spencer went on to say that he felt the UK consumer was simply cashed out and couldn’t go on spending like they had. The Ernst & Young report says that they expect to see a meager 0.4% increase in spending in the country this year. Spencer said that the only way Britain could turn things around is if the world economy started seeing a rapid growth, which is not likely at this point in time. It will take a lot of hard work and enterprise by the UK exporter to overcome these hurdles but Spencer said it could be done.
The team went on to say that this refocus towards overseas trading from the domestic consumer wasn’t going to be an easy transition and that there might be many business causalities. One of the countries that Spencer suggested would be good to focus on is China. The UK has a very low market share in China and it’s expected to be a market that they start focusing resources towards, as the potential is so large. In recent years, Britain has done a lot of business in Asia but has not focused their sights on China as effectively as they could have but Spencer hopes that will change.
In 2011, the Ernst and Young report expects to see an increase in exports for the UK but 2010 will be quite slow. The good thing is that 2011 may see as much as 9% growth and then up to 10% in 2012. This will calm many investors who have felt concerned about the recession and it should help the UK economy to turn around. Figures from last year show that the UK officially ended its recession in October 2009 but this was only made possible by unsustainable measures by the government.
These measures include the car scrappage program, firms that have been restocking, and increased spending when the VAT was at a lower rate.
It was expected that after the side effects of these measures went away trouble would begin again.
Another report by Begbies Traynor says that insolvencies in the final quarter of 2009 were actually 15% lower than the same time a year before. This statistic was likely another result of government support measures to try to keep the economy from plummeting further.
One thing Ernst & Young suggested was that the government could lower interest rates even though further unemployment was expected.
Learn more about consumer spending and IVAs by visiting Mike Garrett’s website.