Optimism growing for economy

Oct 6 2009 By Sarah Green, The Journal

TODAY CBI's Chief Economist Ian McCafferty will visit the region to meet North East businesses to test whether recent statistics suggesting the economy is stabilising is cause for celebration or whether it's still too early to call.

Figures from the Office for National Statistics last week revealed an unexpected improvement in the state of the UK’s gross domestic product (GDP) – and now, the annual survey commissioned by the CBI and accountancy firm PriceWaterhouseCoopers have provided further cause for optimism.

After almost two years of falling business volumes and profitability, the latest CBI/PwC Financial Services Survey has suggested an upturn in the fortunes of some financial services firms. After so much doom and gloom, this is refreshing news.

While the economy is emerging from recession, securities traders and investment managers have seen strong volume growth over the past quarter. Banks and building societies, too, expect that growth will resume over the next three months.

This may mean potentially better news for retailers in the run-up to Christmas, with the CBI’s latest Distributive Trades Survey showing an overall rise of 3% in year-on-year sales volumes. After four consecutive months of falling sales this news could provide hope that this Christmas won’t be blighted by the problems which saw the likes of Zavvi and Woolworths sliding into administration.

However, all of this must be put into context. Although bandying about phrases like ‘green shoots’ is becoming more popular, there is still a way to go. The CBI/PwC survey has shown that the insurance sector in particular anticipates further falls in business volumes, and that firms in general are still concerned with future demand, and the knock-on effects that it will have on an already bloated employment market.

Meanwhile, the stabilisation in retail sales is undoubtedly good news, but the fact that 22% of retailers surveyed described sales as below average for the time of year tells its own story. Combined with consistently low levels of stock on the shelves, and a predicted fall in sales within the wholesale sector, there is clearly a long time to go before marked improvement will be seen across the board. The UK economy is still shaky. Despite the promising signs and talk of stability in the housing market, growth is likely to remain slow. However, some growth is undoubtedly better than none, and this can only be a good thing for the economy as a whole.

Sarah Green is regional director of CBI North East