UK Economy: 'Cautious Optimism' Grows

Cautious optimism is creeping back into parts of the British economy as businesses consider the risk of the country returning to recession in the new year to be lessening, according to a survey by Lloyds Banking Group.

Retailers in particular told the bank, in the midst of their busiest trading spell at Christmas, they felt an improvement in the trading prospects for 2013, despite the Bank of England warning that Britain risked a triple-dip recession.

Some 47% more retailers are looking forward to a better year than those who feared more gloom for the next 12 months. That was up from 34% in November and only 24% in October.

Modest festive cheer from retailers comes despite widespread expectations of a pickup in inflation, which is likely to hit disposable incomes. A report from SAS and Verdict predicts retail sales growth will climb just 1.8% in 2013,with much of that increase attributed to rising food prices.

As well as tentative confidence from retailers, firms operating in the public sector, banks and other services companies also harboured hopes, albeit modest ones, for the year ahead. Only the industrial firms taking part in the survey of 300 firms with a turnover of more than £1m indicated confidence was, for them, on the wane.

Trevor Williams, chief economist of Lloyds commercial banking division, suggested this was likely to be a reflection of the continued recession in the eurozone as well as uncertainty looming over the US economy because of political deadlock on Capitol Hill.

"The upward momentum in confidence in the past two months, if sustained, would point to a return to growth in the early stages of 2013, though external risks remain, including continuing issues in the euro area and the US fiscal cliff. Nevertheless, as we end the year, it is good to see businesses in a more upbeat mood about the economy and their own trading prospects." The survey found 40% more businesses were optimistic for 2013 than were pessimistic.

The cautious optimism identified by Lloyds was echoed by remarks from John Walker, chairman of the Federation of Small Businesses, in a new year message to David Cameron. "Confidence is still low, with many concerned about lack of demand and wider economic issues, but our members are heading into 2013 with more confidence than they did going into either 2011 or 2012. This is a move in the right direction and something the government must build on in the new year."

But, Walker added, banks were still failing to provide the finance companies needed, with less than 10% of small businesses reporting easy access to credit. He said relations between small businesses and Britain's biggest lenders had hit new lows after the Financial Services Authority confirmed it had found widespread "serious failings" in the way complex interest rate swap products had been aggressively sold to corporate clients, many of them small family firms.

Also delivering a pointed new year message to government on Sunday was John Cridland, head of the employers' lobby group, the CBI. In a move that appeared designed to quieten resurgent eurosceptic voices within the Conservative party, Cridland warned Cameron the UK risked being sidelined in global trade talks if it did not take its seat at the negotiating table as part of a larger European Union bloc.

"We can't beat around the bush – we pack a bigger punch in securing trade deals inside the EU than outside," he said. "The US wants the big prize – access to a market of 500 million customers across the EU, not just 60million on our own shores. So the best way of getting the right deal for the UK is on an EU-wide basis. The EU must be the launchpad for UK business to trade with the rest of the world, carving out a new global role for ourselves."

Powered by article was written by Simon Bowers, for The Guardian on Monday 31st December 2012 00.01 Europe/London © Guardian News and Media Limited 2010


image: © DFID - UK Department for International Development

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