UK to Emerge from Recession after Election
Despite the National Institute of Economic and Social Research (NIESR) saying Britain is already out of recession the Federation of Small Businesses (FSB) has predicted that business investment is unlikely to increase and the economy will not emerge from recession until after this spring’s general election,
According to the FSB’s head of public affairs, Stephen Alambritis, while it will be another difficult year for businesses there are signs that the UK will start to emerge from recession after the general election — which is expected to take place in May this year.
“The results of the general election will influence investment decisions, as businesses don’t yet know what the tax rates will be — for example capital gains tax — and that will hold them back. So, after a couple of months of a new administration, confidence will improve and it should be a good summer for firms.
“There is still a chance of a double-dip recession,” added Alambritis. “However, we are hopeful that it will be a ‘V-shaped’ recession because consumers are beginning to spend and, if interest rates remain low, people will start to spend more. We’re not talking about a brilliant recovery, but small and steady growth this year.”
Alambritis said that firms should be vigilant with their cashflow during the next few months to ensure they survive.
“They must also keep hold of customers, keep on good terms with their bank manager, be careful not to overreach themselves and take advantage of the gaps left by other businesses that have closed in the recession,” he added.
However, the Institute of Directors (IoD) predicted an “L-shaped” recession (a sharp recession followed by an extended period of stagnant growth where the economy doesn’t recover for several years) with weak quarter-on-quarter growth in 2010-11.
The IoD’s chief economist, Graeme Leach, said that the tightening of public spending after the election will reduce growth.
“We are very doubtful of a sharp bounce back in 2010. Debt reduction is a priority for consumers and companies at the moment.”
The British Chambers of Commerce (BCC)’s director general, David Frost, said that 2010 would be tough for small firms.
“The private sector must be allowed to generate investment, growth and jobs by reducing the tax and red tape burden. Support and incentives must be provided where needed, and the economy must be balanced away from debt and the public sector.”
According to a recent O2 survey, only 14% of small firms believe that it will be a “W-shaped” recession. However, a total of 27% predicted it would be “V-shaped”, expecting the economy to get worse in early 2010 before improving significantly later in the year.