Chamber’s business predictions for 2011

Clive Memmott, Chief Executive of Greater Manchester Chamber of Commerce

Commenting on the economic outlook for 2011, Clive Memmott, Chief Executive of Greater Manchester Chamber of Commerce, said: “The UK economy has seen encouraging levels of growth in recent quarters bolstered by the construction sector. However this has not been the experience in Greater Manchester and our construction sector continues to struggle in the light of low demand.

“In spite of this, the region’s economy has for the most part had a positive year, with business failures and unemployment decreasing and business start-ups on the rise. Although this will be little comfort to those that lost businesses and jobs this year.

“Our members have been experiencing the downside of the public sector cuts since early June, though the private sector overall has continued to create jobs and growth.

“We believe growth will continue in 2011, albeit at a slower pace than originally thought earlier in the year, due to the VAT increase and faster deficit reduction programme. Early indications for our Quarter Four economic survey show substantial weakening and I think that a number of recent forecasts are very optimistic in relation to the level of forecast growth.

“It is important that central government and the key private and public sector players develop a strategy for growth that will give companies, particularly SMEs, the confidence to invest.

“The reality of the challenge is becoming clearer. The recovery is facing strong headwinds, for some areas a ‘double dip’ is likely, while other strong economic areas will continue to prosper.

“Next year is likely to be difficult for some of our members due to the level of dependency on the public sector. The recent spate of job losses in the manufacturing and construction sectors are raising concerns that unemployment is set to rise again in the New Year on top of the seasonal increase in Job Seeker’s Allowance claimants following the Christmas period. At present we are struggling to see where the skilled manufacturing jobs will be created on a scale required to prevent unemployment increasing during the first few months of the New Year.

“It is pleasing to see that some capital infrastructure investment will start in the New Year with the electricification plans for the rail network across the region; however the Greater Manchester economy does not operate in isolation of global factors.

“Inflation is likely to rise in the New Year, primarily as a result of the VAT increase, though upward pressure continues due to growth in the world’s emerging economies. Demand in these countries is driving up commodity prices, coupled with a weakened Sterling, and is increasing producers’ raw material prices. There is a growing argument for interest rate rises to ease the situation, but this would be damaging to both businesses and households, so we expect the Bank of England to continue with a 0.5% interest rate well into 2011 and the need for further rounds of quantitative easing should diminish.

“The things to watch in the coming year will be wage inflation and the debts in the Eurozone. Many people will be seeing pay freezes for the third year and this will be squeezing budgets, not helped of course by inflation. If the Bank is to hold interest rates wage restraint must be exercised, if not then they will surely rise sooner with damaging consequences. The outlook for the UK is improving and exports are leading the way, but with doubts remaining over Portugal and Spain we remain exposed to the performance of our main trading partners in Europe. Those of our members who export can alleviate this risk by seeking out new and emerging markets, but government policy must be in place to assist with the risks and challenges these markets pose.

“The global economy is still forecast to grow at an average of 37% over the next decade. The UK will remain a key provider of global services. Manchester is a leading location with global reach – reputation and skills matter and the Manchester brand is strong.

“There are great opportunities for our strong sectors: advanced and niche engineering, environmental, financial and professional services, life sciences/medical research, ICT digital and communications.

“One area of huge importance is the question of whether the banks will again start lending to SMEs – not to weak companies but those that need additional capital to fuel their growth. At the moment unless an SME has the balance sheet of a large corporate, they are struggling to access money from the banks and this must be addressed if we are to achieve the growth the economy needs from the private sector. Of course there are other sources of capital and we will have some great local schemes, but this can only address a fraction of the demand. This is a critical issue.

“The Government has made great claims about wanting to be the greenest government ever, yet against a backdrop of sweeping reforms this may at first appear to be even more challenging than many thought. This does not have to be the case through, there is a clear double win for anyone who cares to take a look. Increasing economic prosperity comes hand in hand with saving energy and raw materials. The coming year will be a turning point in many ways and it’s vital that companies in Greater Manchester seize the opportunities that a low carbon economy will bring.

“The Government has started to implement measures which will enable companies to realise these opportunities through initiatives such as the Green Investment Bank and the Green Deal. Hopefully these will be brought forward sooner and larger than planned so that we can accelerate our transition to a low carbon economy. The key to success lies not with governments but individual companies who can make small changes that make big differences.

“One of the key factors in the year ahead will be the strength of the Greater Manchester brand. Our area is known for its can-do attitude and the good relationship we have between local authorities and businesses. This means we are well placed to deal with the many challenges and opportunities that 2011 will bring.”