Insight on the current state of the economy and how it relates to Dorset by Nigel F Jump, Chief Economist of Strategic Economics Ltd (a Dorset Company) and Visiting Professor in Economics at the Universities of Bath and Plymouth.
See: www.strategiceconomics.co.uk
Dorset’s economy is benefiting from a recovery, which now seems secure. Barring a calamity in the Ukraine, or other political shocks, the evidence is that we will emerge from a prolonged, six-year downturn before the autumn and growth will be significantly better this year (2014) than it has been for quite a while.
Recent surveys support this conclusion:
- Although the PMI measures have eased a bit from the turn of the year, they still record high balances on output, orders and employment, with SW England better than most other UK regions and areas.
- The British Chamber of Commerce has increased its growth forecasts for 2014 (+2.8%) and 2015 (+2.5%) – indeed, they may still be too pessimistic.
- The BDO optimism indices for business confidence and employment are both above 100, indicating expansion in the months ahead.
The markets have responded positively to these signals with sterling gaining against its competitors and recovery stocks to the fore.
Locally, the latest (March) claimant count rates suggest virtually full employment in Dorset, with rates of 2.4% in Bournemouth, 1.7% in Poole and 1.3% in the rest of the county. These rates are well below the English average (2.8%). Some of these low rates reflect changes in the benefit system itself but there is little doubt that Dorset’s economy is being helped by its high and flexible employment rates.
Now that the recovery is underway, the question is whether the local economic structure can sustain an upturn. There is little doubt that Dorset has some great high value, exporting and productive businesses that will prosper as the economy here, and overseas, experiences more forward momentum.
This is particularly true for some of our aerospace and advanced engineering businesses, other export orientated manufacturers and service companies that match positive changing demand structures in creative, professional and other business and high value areas. Also, it will be interesting to see how local tourism capacity prepares for a potential increase in demand this summer and there is a question of how the local housing market, and construction more generally, responds to better prospects for development.
There are, however, constraints on the upturn.
- Real household incomes are not strong. Although the media has made much of the fact that the average curves of earnings and inflation may be crossing, most consumers have years of declining living standards to make up. For many families, considerable insecurity in personal finances and budgets remains.
- Business investment plans are better but are still modest. Most of the signals are that firms are more willing to spend on technology, plant, machinery, skills and marketing in 2014 than they were in 2013. The investment gap, however, both in absolute and relative terms, remains wide, with UK and local trade and productivity performances still not strong enough to sustain growth.
- External uncertainties continue to restrain decision making, from the Scottish Referendum and the UK General Election, through the restructuring of European debts and Chinese finances, to the short-term effects of any UK economic rebalancing, including public debt reductions and the eventual tightening of the monetary policy stance.
For these reasons, the recovery is real but vulnerable to petering out. This is why most forecasters, including the Office of Budget Responsibility, expect growth to moderate in 2015. Long-term business plans should not be based solely on the short-term improvement in demand but should also reflect the need to raise competitiveness for a future of constrained real growth.
Professor Nigel Jump, 1st May 2014
