Economist points out positives to UK businesses

UK companies have a “cash mountain” of £700bn on their balance sheets which is ready to be invested as soon as they feel more positive about the future, according to a top economist.

David Fenton, senior economist at RBS Corporate, told an audience of Yorkshire business leaders and advisers that there are plenty of reasons why they should be positive despite the “headwind” from the Government’s austerity policies.

He said he that he had four messages of positivity to remind people there are reasons to be optimistic.

He said that GDP should not be the only measure of economic success. “The labour market is actually performing quite well and added 500,000 new jobs over the last 12 months despite the public sector job cuts.”

Secondly, he said that there was still economic “policy ammunitition” that could be used following quantatative easing.

Thirdly, he said: “In this country we are guilty of being a little too hard on ourselves, we seem to love talking about these stories of national decline – even the national football team – but remember that we are the 8th most competitive economy in the world, the seventh largest economy in the world, we’re the 10th largest exporter and the sixth largest manufacturer.

“If we could cut ourselves a bit of slack we might be able to punch our weight,” added Mr Fenton.

And in his final positive message was: “Last year the economy was flat as a pancake but two thirds of companies were able to turn a profit.”

“Over the last five years in the UK the growth rate has been weaker than it has ever been. The country has never had five years as tough in its post industrial history, so well done for still being here,” he told the audience at the event hosted by Jim McAuley, regional director of RBS Corporate Banking.

The lunch at Harewood House, included senior figures from firms including RSM Tenon, Walker Morris, Baker Tilly, KPMG, PwC, Mazars and the Leeds City Region Local Enterprise Partnership.

“Our view is that we are going to continue to experience this sub-par growth over the next two to three years,” said Mr Fenton.

He said there were two things holding the economy back.

“Firstly the fear factor – we can’t go for more than six weeks without something disastrous in the global economic picture, which does affect confidence. And secondly, the overhang of debt.”

He said that whilst 80% of the Government’s tax increases had happened and two-thirds of cuts in investment had been completed, it was only one-third of the way through the benefit cuts programme and other departmental spending cuts.

“Austerity is going to take five years. This headwind is going to remain. Futures markets are saying that interest rates are not going to rise in the UK until May 2016. So they doing think the UK economy will be strong enough to cope with anything else other than 0.5% interest rates for another three years.”

Mr Fenton said that the £700bn sitting on the balance sheets of UK firms was a real positive, but would not be unlocked quickly.

“Business investment never leads the recovery, it always lags it,” he added.