Road to recovery will be ‘long and bumpy’

OFFICIAL figures will next week show that the UK economy exited recession in the last three months of 2009, but a top economist believes the road to recovery will be “long and bumpy”.

John Hawksworth, chief economist at business advisers PricewaterhouseCoopers told TheBusinessDesk.com that while the worst was over, and a severe double dip recession “unlikely”, there is still a huge amount of ground to be made up.

“In normal times in the 18 months to the third quarter of 2009 the economy should have grown by around 4%, but in reality it shrank by 6%, so there is quite a big hole to close up before we get back to where we were.”

Mr Hawksworth believes it is quite possible that the economy will not claw back all this lost output, and estimates the damage amounts to around £70bn in GDP, which he says will have “severe implications in terms of public finances”.

“Tax revenues have had a hole blown in them and we are going to enter a period of tax rises and some of the harshest public spending cuts since the 1970s.

“Things are picking up, but growth this year will be about 1.5% compared with the loss of 4.75% last year. It’s going to be a slow recovery and I question how sustainable it is.”

He said unemployment was unlikely to reach the levels – of around 2.8 million – that many economists had predicted, and that many people had proved flexible in terms of pay cuts, wage freezes and reduced hours to keep themselves in work.

“Hopefully the permanent scarring of this recession won’t be so severe,” he added.

Mr Hawksworth said with the international economic balance of power shifting towards the East with China and India growing at a dramatic pace, it is important for British companies to start looking at the opportunities there now.

“We have an advantage in our language, but at the moment a very small proportion  of our exports are to China, and this needs to change. There is going to be huge demand from China in the future and  the big challenge for this country is how to exploit this.”

He said Northern cities like Manchester and Leeds had positioned themselves well in recent years for the challenges of the new economy.

He said: “Success breeds success and I think both the two cities have created a centre of gravity which has drawn investment in.”

He said regional economies which are based around knowledge, smart, lean manufacturing, business and financial services, were well placed to do well.