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Business and consumer confidence on the up - but businesses need to invest to sustain the economic recovery

14 March 2014 #Corporate

Economic Outlook – Stephen Gifford, Director of Economics, CBI

Reading, March 2014

Hosted by Clarkslegal’s Head of Commercial, John Warchus

Addressing an exclusive audience of Thames Valley senior executives, the CBI’s Director of Economics Stephen Gifford announced last week that the UK economy is gathering momentum and is currently enjoying record levels of business optimism. However, he cautioned that to sustain this recovery, it is imperative that businesses increase investment.

The UK economic recovery

The UK economy has enjoyed three successive quarters of strong growth. Critically, this is a broad recovery, across sectors and is not just centred on London and the South East.

The CBI is expecting continued growth through 2014 and 2015 - its composite indicator for projected output over the next three months is at a record high. Mr Gifford explained that businesses have already been investing in skills, training and new product development. But he expects this to move to more tangible investments, such as offices and plant equipment.

The improvement in the UK economy can attributed to improvements in credit conditions in mid-2013, the Bank of England’s extraordinary monetary policy and the receding of catastrophic risks such as the Euro collapse.

Changing credit conditions have been particularly positive for larger corporates. But Stephen believes more work needs to be done to improve credit availability for SMEs and hopes that the Budget will provide some new initiatives in this regard.

The sustainability of the recovery

So far, the consumer sector has driven the lion’s share of the recovery, with consumer confidence now at the highest since 2008. This is understandable as the consumer often leads the way out of a downturn. In accounting terms, consumer spending is the majority of GDP on an expenditure basis.

While economic growth is to be applauded, there are still some concerns over sustainability. The growth in the consumer sector has arisen as from a fall in the savings ratio. In other words, people are spending their savings on goods and services. Reducing the savings ratio is not sustainable over the longer-term. Moreover, many households are only half-way through the process of paying down their debt –the deleveraging of debt process still has a few years to go. Both these forces will constrain the ability of the consumer to support growth over the medium term.

For the recovery to be deemed sustainable, we need business investment to pick up significantly. A few months ago, we would have been worried that this was not happening. But recent figures from the Office of National Statistics suggest that business investment is growing. The CBI forecasts that business investment will rise by 6.6% this year and 8.3% next year.

A move from economic to political risk

The main UK political parties are now moving their focus away from austerity to the cost of living. Mr Gifford expects this will continue to the main issue in the build up to the next general election. For the last four years the cost of living has increased due to the consumer price index being 1-2% above average wages rises.

Another significant issue for CBI members are the cost and security of energy, because of its impact upon businesses’ costs and investment decisions. The CBI has lobbied the Government hard for some help towards the cost of energy, especially for energy intensive industries.

The global economy

Mr Gifford described the UK exports position as erratic over the last year. He believes the export outlook is still improving but that the UK is a long way from being an export-led nation. Exports to Europe as a whole have been weak as economic growth due to the mediocre growth across most European countries. Over the medium to long term, the BRIC countries and other developing markets are expected to grow. But there is a word of caution. These potentially bigger rewards come with bigger risks. Consequently exporters are still exporting to the UK`s traditional markets first - Europe, Ireland and the US.

In summarising as Chair of the discussion, Clarkslegal’s Head of Commercial, John Warchus, supported this assessment, explaining that many businesses Clarkslegal work with are nervous about exporting outside Europe or the US. He cautioned that optimism in a global economy can be quickly evaporated by worldwide events that are out of our control.


Concluding, Mr Gifford left the audience with the following observations:

  • UK businesses are experiencing record levels of business optimism
  • The economic recovery is across a broad sector base and not just in London and the South East
  • Consumer spending is up but these is as a result of a fall in the savings ratio
  • Business investment has started to rise but further sustained increases are required to sustain the recovery
Clarkslegal, specialist Corporate lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Corporate matter please contact Clarkslegal's corporate team by email at by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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Ashan Arif

Ashan Arif

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M: 0782 504 0062


Corporate team
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