Things may be on the up for the UK economy but key business issues remain with less than a year until the general election, says Clive Lewis, head of enterprise at the ICAEW
The next general election is now less than a year away and each of the main political parties are starting to ramp up their campaigning efforts. Central to the messaging will be the state of the economy and how it is seen to be recovering by businesses and the general public. With that in mind, the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM) seems to make for good reading for the Conservatives and the Liberal Democrats.
The report shows that more than 450,000 private sector jobs will be created within the next year – with SMEs seeing the highest increase in expected jobs growth. The UK economy is forecast to grow by 1.2% in Q2 2014, representing a significant milestone for the recovery and finally taking GDP above its pre-crisis peak in Q1 2008. This is great news for the UK as a whole but I imagine the chancellor will be especially pleased to see the economic recovery strengthening ahead of the next general election.
Businesses are also becoming more optimistic, leading to a second consecutive quarter of record growth. The business confidence index, the headline measure of the BCM based on a survey of 1,000 of our members, is now at +37.3. This is higher still than Q1 2014 which was a record quarter for confidence itself. As confidence begins to stabilise, businesses will become more willing to invest particularly as turnover and profit growth continue to accelerate.
The survey also shows that we can expect both domestic sales and export growth to pick up over the next twelve months – a further boost for the government. However out of the two, domestic sales growth will be the key driver. Such expectations have led to non-exporters being far more confident about the direction the economy is heading that exporters are.
The good news isn’t limited to businesses though. Employees can also expect to see their salaries rise over the next year. This will be coupled with the anticipated cooling of interest rates through the same period, meaning 2014 could be the first year that consumers start to see the benefits of the economic recovery.
In sector-specific news, confidence in the property sector is also at a record high, something never before seen over the past decade. The property sector has also reported the highest capital investment growth and expectations of all sectors.
Despite the good news, the skills gap is expected to widen, especially in the construction and IT and communications sectors where skills for both management and non-management are still falling short of what’s needed in the market.
This skills gap is part of a much wider issue, with our research suggesting that business owners are worried that they will not be able to recruit employees with the right skills. The government has been moving in the right direction on apprenticeships and skills, but it isn’t happening fast enough for home-grown employees to fill the gap.
We want to see long-term jobs emerge rather than something that is simply a temporary fix to unemployment. One way this could be achieved is through employers investing in training to show a commitment to their workers, improve their productivity and improve the outlook for their businesses.
This quarter’s BCM confirms the increasing strength of the UK’s economic recovery. But in amongst the good news, there are two issues which could hold back the recovery. The skills gap is widening and exports are still not rising fast enough. The government needs to make sure it addresses both of these quickly otherwise growth could be stifled, thus creating challenges for whichever party comes to power in May 2015.