Investment in infrastructure should boost local construction industry Bill Gleeson reports

THE consensus among economists is that growth will remain weak during the coming 12 months. At last month’s Autumn Statement, the Office for Budget Responsibility predicted the UK economy would grow by just 1.2%.

However, the one thing economists share in common is the constant need to revise their forecasts. While they might be right about general underlying conditions, they can be wrong about a lot of the detail.

Falling unemployment continues to puzzle economists. Last year, the number of people out of work fell to 2.5m and the number of jobs in the economy grew to an all time high of 29.6m at a time when output was flat. Normally, when output is weak, economists would expect to see unemployment rising and the number of jobs shrinking.

Those with their ears close to the ground locally have mixed views about what the year ahead holds.

Frank McKenna, chairman of business lobby group Downtown in Business, is a bit more optimistic than the economists. He points to anecdotal evidence that firms are keen to get moving again.

Mr McKenna said: “I think it’s going to be a better year than forecast.

“The only evidence I have for this is my gut instinct. Over the past six months, we have seen far more activity from businesses wanting to promote themselves. We, at Downtown, have seen more enquiries for recruitment agencies and that tells me that people are starting to take people on again.

“That’s not to say it’s not going to remain a challenging environment. I think those businesses that survived the last five years deserve a medal and will find things easier in the next 12 months.”

Mike Palin, director of strategic economic development at the Liverpool City Region Local Enterprise Partnership, points to the fact that construction work on major local infrastructure projects is due to start this year.

Mr Palin said: “We expect at least £1bn of investment to begin in 2013.

“Liverpool2 and the second Mersey crossing projects should start. There will be an immediate impact.

“We would also hope to see the knock-on effect of a more productive manufacturing sector. A lot has been made of Jaguar Land Rover’s third shift.

“Because of changes to labour market laws, we have not seen as steep a rise in unemployment as in previous recessions. We have seen greater resilience in the labour market. Hopefully that can continue in 2013.

“If a business puts its staff on a four day week, they don’t show up in unemployment figures.

“That business may have expected demand to increase, but if that doesn’t happen soon they may decide to cut their resource requirements.”

If businesses become impatient about the continuing lack of economic growth and, as a consequence, they begin to lay off staff, this could add substantially to unemployment figures.

Jenny Stewart, chief operating officer of Liverpool Chamber of Commerce, believes tough austerity measures, further public sector spending cuts and continued weakness in the eurozone will continue to affect local firms.

Ms Stewart said: “Recovery towards the end of 2012 was slow and we predict that this will not change substantially as we enter 2013.

“We expect to see continued, albeit gradual, improvement in employment figures. However, our export markets remain volatile.

“We are looking forward to seeing the development of the plans for the International Festival of Business in 2014 in Liverpool to encourage our small and medium sized businesses to find new markets abroad.

“A surge in inflation early in the New Year would not be welcome if we are relying on domestic sales orders for growth.

“Some of our manufacturing businesses, particularly those working in the commercial aerospace and nuclear sector supply chains, are already reporting healthy order books and are confident of further growth in 2013.

“Technology businesses continue to innovate strongly and should be helped during 2013 by the growing range of funding options being made available.

“There are early signs of some recovery in the construction sector. Businesses that supply the construction sector, such as equipment hire, are beginning to invest again.

“However, businesses reliant on consumer spending continue to face significant uncertainty.

“2013 will see the first openings in the Central Village development, which will help create critical mass in that area of the city.”

Paul Hyland is a tax partner at Liverpool accountancy practice Duncan Sheard Glass. He also predicts another tough year for the economy, consumers and businesses.

He said: “Inflation will be fiercely controlled by the government but there will be immense pressure on the rate, driven by market forces, which will see rises in the price of basics such as foodstuff and energy costs.

“There will be very little growth as we continue to reshape the economy and address the balance of payments. Interest rates will continue to be pegged down as any increase would be a blow to already hard-pressed home owners and to businesses which borrow.

“Overall, it’s going to be another very tough year. It would be good to see a continuance in the recent rise in private sector led job creation but there’s every chance that further public sector cuts will see unemployment move upwards again.”

Derek Gawne of stockbroker Charles Stanley said: “We expect inflation to remain benign but above the 2% target for the next year or so. Dividend growth of around 5-6% in both 2013 and 2014 should also boost total returns and we anticipate a partial reversal of the recent fund flows out of equities. We do make the case for a continued equity market re-rating but with risks attached – should policy remain paralysed in the face of pressures from high debt, deleverage and ageing western population demographics.

“The absence of structural reform would depress the growth outlook and investor confidence. A blended assessment of our base and bear case implies 8% upside from UK equities in 2013 with overall returns boosted by dividend payments. For 2013 we are keen on a number of what are seen as bell-weather stocks that offer encouraging dividend yields but are more defensively orientated.”

John Allan, chairman of Federation of Small Businesses Merseyside, West Cheshire and Wigan, said: “Despite the tough economic realities they face, small businesses have diversified and tried to grow over the past 12 months. Our latest ‘Voice of small Business’ index shows that, overall, they are cautiously optimistic about their future prospects. There are fledgling signs of resurgence in entrepreneurial confidence – but this confidence is fragile and must be nurtured.

“While the index shows businesses want to grow and invest, confidence does remain relatively low. This reflects concerns about a lack of demand as well as wider economic issues. Nevertheless, 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.”