Too Early to Celebrate End of Recession
Businesses should remain cautious and restrict their spending despite claims that the recession is over, business consultancy firm RSM Tenon has warned, as there may be a further slump in spending to come.
Figures from the Office for National Statistics revealed that the UK economy grew by 0.1 per cent in the last three months of 2009 ― mainly driven by an increase in manufacturing output. Previously, the economy contracted for six consecutive quarters, the longest period since the ONS started its quarterly survey in 1955.
However, RSM Tenon’s director of accounting, Tom MacLennan, urged firms to be cautious.
“The figures show fairly marginal growth in the last quarter of last year and could be revised. Technically we are out of recession, but businesses should wait to see what the next quarter brings before they get too optimistic. There is usually a cutback in spending in January and February.”
“The economy’s growth may have been driven by Christmas spending and demand, and people’s desire to avoid the VAT increase to 17.5% in January. Firms will have used the temporary VAT decrease to boost sales by cutting prices and they may not be able to put these prices up in the current environment ― 2010 is likely to be challenging.”
He added that firms should continue to be vigilant with their cashflow.
“Businesses will remain on a tighter budget than before the recession due to a lack of credit,” said MacLennan. “It’s going to take a long time for credit availability to get anywhere near what it was three or four years ago.”
The Confederation of British Industry’s chief economic adviser, Ian McCafferty, said that businesses will not feel the effects of the economy’s growth yet.
“While the ONS data marks the end of the longest recession in living memory, the slightly disappointing rise of only 0.1% demonstrates how fragile the recovery is. There are some signs of life for the UK consumer and manufacturing exports, but otherwise private sector activity remains very sluggish.”
“Even if the estimate is revised upwards in coming months, this rate of growth is lacklustre and for many it will not feel like recovery for some time yet,” he added.