A Sunnier Forecast for North West Business

The North West economy should return to growth in 2013, according to the latest nationwide economic forecast from PwC.

PwC’s latest UK Economic Outlook published today says that while overall UK economic growth will be virtually zero in 2012, it should grow by around 1.8% in 2013, with the North West forecast to grow by around 1.5% in 2013.

Figures from the labour market also remain positive. The UK employment rate in Q2 2012 for those aged 16 to 64 was 71.3%, up 0.5 percentage points on the previous quarter and up 0.9 percentage points on a year earlier. The unemployment rate fell to 7.9%, down 0.2 percentage points from the previous three months. The number of people employed in the public sector fell by 39,000 between March and June, but this was greatly outweighed by net private sector job gains of 275,000 over this period. The employment rally was shared by almost all regions in the UK, including the North West whose employment rate has risen to 69.8%.

The problems facing the UK in 2013 include a flat housing market, slowly returning consumer expenditure and a lack of public spending growth; export opportunities will also remain subdued as the eurozone crisis constrains demand in highly competitive market conditions.

However, Iwan Griffiths, PwC’s North West Chairman, says local householders should benefit from falling inflation which has stifled consumer spending over the past 18 months:

“Inflation has fallen from 5.2% in September 2011 to close to the Bank of England’s 2% target.

“And while it may increase slightly, we still expect consumer spending growth of around 0.7% in 2012 and 1.3% in 2013 as lower inflation eases the squeeze on real disposable incomes that led to a 1.1% fall in real consumer spending in 2011.

“That recovery could, in turn, stimulate a gradual rise in business investment in response to stronger consumer demand and some improvement in global growth during 2013 further boosting UK net exports.

Nevertheless, despite the cautious optimism, PwC’s UK Economic Outlook warns of risks around growth in its main scenario; these are still currently weighted to the downside at present given the ongoing challenges and political uncertainty in the eurozone. Given this uncertainty, PwC’s report urges businesses to stress test their plans and valuations against an alternative scenario in which the UK slips back into recession.

Iwan Griffiths, PwC’s North West Chairman, continued:

“Our economic weather map for 2013 is mixed; some sunny spells around anticipated economic growth, but the challenge of continuing to tackle unemployment and rebalance the economy will cast patchy cloud over recovery.

“However, the more positive national data on GDP, employment, inflation and retail sales suggests that the North should benefit from a faster and deeper recovery elsewhere in the UK.”

Looking to the shorter term, Brian Clark, head of tax in the North West , says that the gradually improving national economic outlook could offer the Chancellor some wriggle room in his forthcoming Autumn Statement.

“Recent good national economic news should also give the Chancellor a little more room for manoeuvre in his Autumn Statement on 5th December. We believe that he should focus his firepower on measures to boost infrastructure investment in areas like roads and road maintenance that can come on stream quickly to support the struggling construction sector, while also strengthening the supply side capacity of the economy in the longer term.

“The recent report – No Stone Unturned – from former Conservative party Deputy Prime Minister Lord Heseltine, urges greater devolution of Whitehall funds to the regions. This may also give the Chancellor an opportunity to reinvigorate regional economic development across all the UK regions alongside a clear cross-Departmental vision of what is necessary to promote national economic growth.”

For further information contact: jill.peacock@uk.pwc.com