Yorkshire’s best vital for economic recovery

YORKSHIRE’S economic future will depend on the robustness of private firms bucking the economic trend as well as the strength of public firms such Morrisons, Cranswick, Pace and Croda.

Iain Moffatt, office senior partner at KPMG’s Leeds office said that while business optimism was improving, opinion was still divided over whether the economy as dipped to its lowest point or whether worse is yet to come.

He said that with the region’s financial services sector being impacted by the credit crunch together with inevitable public spending cuts, there would be a greater degree of reliance on the local private sector to drive recovery.

His words of caution follow the publication of KPMG’s latest National Business Confidence Survey, which showed that levels of confidence among senior executives about their business prospects are the highest since Spring 2008.

The proportion of senior executives questioned who think their business prospects are good has almost doubled to 42% from 22% in the first quarter.

And only one in four executives currently believe their own prospects are poor, down from 37% in the spring, with one third “indifferent”.

But business executives are far gloomier about the wider economy. Around half (54%) consider the UK economic outlook to be bad, while less than one in 10 (9% are bullish about economic prospects.

While negative, these findings are a significant improvement on the spring when 81 percent said the economic outlook was bad and a miniscule 3% felt there was cause for optimism.

Improved sentiment overall may be linked to the fact that a slim majority (55%) of executives now believe the economy is at the bottom of the cycle.

Three times as many respondents now expect the recession to last less than a year – 49% compared to 14% in the first quarter.

However, Mr Moffatt remains cautious in his outlook.

“I think we are somewhere close to the bottom and that we may need to get used to this uncomfortable position. The jury is still out as to the likely shape of the recession and an L shaped one – with a long period of relative stability but nothing constituting a recovery – cannot be ruled out.

“The issues affecting the economy over the last year or so; weak demand, spare capacity, margin pressures and funding issues won’t magically disappear.”

He said that the rise in confidence was certainly not due to an improvement in business conditions.

“The rise in confidence is certainly not due to an improvement in the conditions businesses are facing.

“In fact one in three now admit to experiencing financial difficulties, the number facing higher financing costs has grown to 51% versus 41% last quarter, and more businesses are also experiencing tighter borrowing – 53% against 51% in the spring.”

Mr Moffatt continued: “Given the increase in concerns relating to financing, it is perhaps no surprise that our survey found nearly one in four businesses have seen their banking relationship worsen. This should send a shot across the bows for business management teams that may be forecasting funding issues.”

But while Mr Moffatt commented that it was “quite peculiar” that in tandem with worsening in the financial problems confidence levels were rising, he said it demonstrated that firms were taking hear from the relative stability in the economy.