Lockdown looms as government cuts threaten
Despite growth in some sectors, anectodal evidence points to a very cautious economic outlook, says analyst
Jeremy Davies: People are looking at budgets and going back into lockdown mode
Businesses are beginning to go into lockdown mode as the economic uncertainty continues in the face of looming government cuts, according to analyst Context.
Jeremy Davies, chief executive of Context, which analyses distribution sales and pricing in 35 countries, said the “jury is out” for the UK.
“In terms of overall UK business, we are not back to pre-crisis levels; in fact, we are still down from pre-crisis levels. We did have a spring of hope at the start of the year when people thought the recession was over, business appeared to be picking up, and we even saw some supply shortages in areas such as memory,” he said.
But Davies said the effect of the government cuts on the psyche and morale of the UK cannot be underestimated.
“The UK already went into a lather over child benefits and once [the government spending review is finally revealed on 20 October], there is going to be a real clamping down in terms of business,” he said.
“The anecdotal feedback that we are getting so far is that this has already started. People are looking at budgets and are beginning to go back into lockdown mode.
“There is also the unknown with consumer business – there may be a boost over Christmas because of the impending VAT rise, but the outlook will remain cautious,” added Davies.
However, it is not all bad news, he said, with some sectors showing promising growth. The top-five growth sectors through distribution to date are telecommunications, PC components, printer consumables, computers and storage.
Smartphones are the biggest success story of the year so far, Context claims, with a whopping 683 per cent annual growth in the second quarter of 2010.
Smartphone accessories showed 339.4 per cent growth, telephony and conference systems 137 per cent, telephony accessories 113.8 per cent, landline telephones 56 per cent and mobile phones actually showed a decrease of 16.4 per cent.
Davies said in terms of the economic climate, the UK is in for a much tougher ride than some of its eurozone counterparts.
“Because the UK is making the hardest cuts of anywhere, our economy is probably going to be subjected to the biggest, sharpest shock of them all,” he said.
“However, if what this government says is true, and it is a big ‘if’, the measures that it is taking will put us in a good position. Things will get worse, but people will get over it more quickly and hopefully it will mean everything can settle down next year and people can just get on with business.”
Joe Hemani, chairman of Westcoast, said he is expecting a tough 2011. “In the UK, 2010 has gone better than expected. We expected people to be jumping off high-rise buildings, but it wasn’t as bad as we feared. My view for 2011 is worse than it was for 2010. The fact that VAT is going up actually matters a lot and the higher level tax thresholds are increasing to 50 per cent, so people at that end will have less disposable income.”
Hemani added: “We are all in for a bit of pain, but is that going to be life threatening? I don’t think so. We just have to knuckle down, take away any waste in our businesses and try to work smarter.”