Inflation down, interest rates stay; business hopes grow

Mark Carney, Governor of the Bank of England, brought some sunshine into lives across the United Kingdom with news of the economy’s growth, lower inflation and declining unemployment.

Downsides to this news — and we have to consider them — is that growth, lower inflation and rising employment should herald a change to the very low interest rates that have helped to mitigate against inflationary pressures that we’ve had over the last few years.

The question I’m interested in is — on behalf of all businesses here in Hertfordshire — when will the Bank of England raise the interest rate? The Governor was clear that the Bank will consider a rise when unemployment falls to 7 per cent. When’s that likely to be? There is some speculation that this will be mid 2015, but perhaps a more realistic expectation will be end 2016.

There is so much riding on rising interest rates, available cash for investment, current productivity levels and household cash for spending in the economy.

What will this mean for local businesses? In a Bank of England briefing to East of England businesses a few days ago, its East of England agent, Phil Eckersley, pointed out that the lending to SMEs was contracting at a faster rate than previously; a concern for the Bank. For smaller businesses however, there has been slightly cheaper financing; credit costs have improved for them.

Business investment and intentions are showing signs of improving. Our export prospects look quite good, despite a recent dip. But we’re still not exporting our way out. What could damage our export prospects is the strengthening of the Stirling on world money markets.

New employment growth is easing back; businesses are beginning to mop up capacity to improve productivity. Companies are expecting output to increase and demand for employment to outstrip jobs. Hopefully this will be a short-lived trend, particularly here in Hertfordshire.

Wages have seen no real change. Private sector earnings are subdued; bonuses are lower too. Prices are likely to rise, but this won’t affect wages.

We are consuming more than we’re earning. This means we’re saving less, which itself means we are feeling much more confident about the future. One indicator of this is the strengthening new car market; we’re rewarding ourselves now.

For household borrowings, which affect money flow into the local economy, there have been some cheap deals on personal loan rates. Housing affordability is a key factor, and while there has been rumour of a housing market bubble in response to Help to Buy initiatives, it is thought that this is highly unlikely; although hotspot overheating might occur in one or two places, such as London.

Britain might be an island, but we’re not immune to less positive recovery headwinds from other continents. Here in Hertfordshire, we must actively encourage micro business ambition, help SMEs where we can pursue finance options such as capital grants and to recruit from the local labour pool, and constantly find ways to create jobs for school leavers.

Confidence is the key!

When preparing a briefing for a visiting dignitary recently I was reminded that, despite the seemingly continuous onslaught of bad news, we lived and worked in an area which had a great deal going for it. Certainly times are tough and I acknowledge that some people will be feeling the effects more than others. Nonetheless, there are a great many things to be grateful for which, among other reasons, is presumably why so many companies have decided to invest here. Certainly it can be argued that a number of our large companies have traditional ties to the area and are therefore more likely to remain, but that ignores the fact that their principle decision makers are no longer UK based and in an age of greater mobility they have other options. That they choose to stay here must be due to factors beyond geographical longevity. Location and local amenities are obviously key factors and surely on that count there can be few places that are better situated. Close to three international airports. Convenient for the UKs road network. Access to quality education. Adjacent to some wonderful countryside and on London’s doorstep with access to national and European rail networks. The ability to recruit a skilled workforce with its roots in a number of the key sectors is clearly a condition that is non-negotiable. When one aggregates these features and combines them with the existence of a reliable, broadly based supply chain I can see no reason why the area would not be the ‘location of choice’ for any business wishing to invest in the UK. True I am somewhat biased but I truly believe that the facts speak for themselves. My point? It’s simple we continue to be bombarded with bad news by a national media that has turned being a gloom merchant into something of a national sport. How can we sensationalise a situation to cast those involved or the circumstances surrounding them in the worst possible light? As the tired old phrase goes ‘good news is no news’. True, the prevailing trends are not what we would wish them to be. True, the global omens leave little room for optimism. And true, it may be some little time before we sense that relief is on its way. The fact, though, is that we have a number of fantastic businesses locally which, if properly supported and cherished, will play a key role in pulling us out of the doldrums. Confidence is the key, it is essential ingredient in developing the recovery While there may be little cause for dancing in the streets we should not be overdoing the gloom bit either.

Where there's muck there's...

The more observant will have noticed our recent event aimed at raising awareness of the environmental sector and to start a countywide debate on the issues. This week I was able to join an East of England Regional Assembly party visiting the Danish Region of Mid Jutland which is taking an extremely proactive approach toward seeking energy efficiency solutions.

Of the sites we visited one converting animal fat into bio-diesel and another turning all sorts of manure into bio-gas were the most interesting. They were both interesting for a number of reasons, not least because they were turning materials that would have otherwise would have been incinerated into valuable heat and power sources. Another interesting outcome was the fact they were adding value to what, at best, would previously have been regarded as nuisance materials.

In a short visit it would be foolish to think that one could discover the definitive answer to the debate on energy efficiency, indeed if anything, yet more questions were raised. How do you ensure that the supply of the relevant materials will be sustainable? Can you ensure that the cost of the raw material is kept at a reasonable level? Can you make the process commercial? And so on and so forth.

To support their research they had also set up an Agro-Science Research Park where they conducted a range of relevant research, hosted start-up research companies and also encouraged young people to develop their science and engineering skills.

Was I impressed? You bet. Envious? Oh yes.

Hertfordshire prides itself on its knowledge based industries and makes a variety of claims about innovation in the county but I have to say we could learn a great deal from the positive, energetic approach of our Danish colleagues. We also need to recognise that finding solutions to the environmental challenges we face will not only be good for the planet but will also provide enormous economic benefits going forward.

As I write I can hear the planners saying “we don’t want these nasty recycling plants” but, in reality, they were no more intrusive than other farm buildings we see in our countryside. What I found really impressive was that someone could take 50,000 tons of waste animal materials and turn it into 55 million litres of high grade bio diesel. Even more impressively any residual ash was used to make cement and bricks. Efficient or what?

Of course there are many questions to be answered. We need to find satisfactory long term answers. If we don’t someone else will.

Solving the conundrum will provide opportunities on a variety of levels. The Hertfordshire Chamber of Commerce & Industry intends to play a leading role in opening up the debate on this subject and I would be delighted to receive contributions towards it.