RBS economist looks on the bright side for 2011
Jan 4 2011 by Henryk Zientek, Huddersfield Daily Examiner
BUSINESSES in Kirklees have six good reasons to be optimistic about their prospects in the year head, according to a leading economist.
Stephen Boyle, economist at Royal Bank of Scotland, said: “If the last three years has taught us anything, it’s to expect the unexpected – and a lot of uncertainty remains for UK business.
“A loss of market confidence or further problems in the financial system could still de-rail the UK’s fragile recovery, but this is a time to look on the bright side – so in that spirit it’s worth offering some potential positive news for the UK economy for 2011.”
Mr Boyle said company balance sheets were generally in good shape, especially compared to those of households and the government.
“Firms used the downturn to preserve cash flows, pay down debt and seek new capital,” he said.
“The spare capacity created by the downturn is now starting to reduce rapidly, while long-term borrowing rates remain at historically low levels – providing a sound basis for an improvement in investment.”
The UK’s flexible labour market had helped firms weather the downturn, he added. “Compared with the downturns in the early 1980s and 1990s, employment levels have been much more resilient over the last three years,” said Mr Boyle.
“Firms used options for part-time work or re-assignments rather than just relying on lay-offs.
“As a result, more workers have been kept in productive use than before, helping to retain and enhance skills.”
In addition, the pound would keep the economy in good shape, Mr Boyle argued.
“We still have a flexible and competitive exchange rate,” he said. “The 25% depreciation in sterling since 2007 offers a more immediate trade benefit.
“In contrast to the monetary constraints faced by some of the peripheral countries in the eurozone, we still retain the flexibility of using the exchange rate as a tool for growth.”
Mr Boyle said it was still a competitive advantage to be British – with English as the global business language, the UK’s legal systems widely used and the GMT time zone allowing the UK to work in both the Asian afternoon and the North American morning.
The UK was also well-prepared for dealing with the current economic climate.
Said Mr Boyle: “We’re been here before and prospered! The mid-1990s were also characterised by major cutbacks in government spending, yet these were also years of positive growth and improvements in investment and trade.”
And he added: “We have export strengths to build on. We are no strangers to international trade – indeed we are one of the most open economies in the world. We must build on this.
“We are the world’s sixth largest exporter and the second largest in terms of services. We have major strengths in high value-added manufacturing, such as aerospace and pharmaceuticals, as well as more traditional export products, such as cars and food-stuffs.”