Cautious optimism for 2011

Ross Walker, UK economist at the Royal Bank of Scotland, said the current year had proved better than many businesses had expected. “In the end 2010 has been OK—and certainly not as bad as feared.” Projected GDP growth of 1.8% for this year would be followed by roughly the same in 2011, despite the forthcoming hike in VAT and continued uncertainty over jobs. “The double dip—falling back into another full-blown recession—is unlikely,” he predicted.

Walker said the hospitality and leisure industries had seen a “gentle” pick-up in employment levels, though he warned that the VAT rise and tight pay settlements would keep the reins on discretionary activities like eating out. “Consumer spending is going to remain relatively subdued. There’s not going to be much spare cash in people’s pockets.” And he emphasised that the recovery would take some time. “This will not be a consumer-driven recovery—and it might not even feel like a recovery. Although the economy is through the crisis phase, for individuals the tax bill is still in the post.”

Walker also admitted that some regions of the UK will feel more pain than others over the next few years, putting further pressure on businesses based outside the capital. “I think we will see growing disparities. London looks fine… and as a general rule the further south you go the better you will be.” Areas that depend heavily on public sector jobs will be harder hit by Government spending cuts, he said.

The mood of cautious optimism is reflected in the latest figures from the Coffer Peach Business Tracker, which found large chains’ sales in October running 2.2% ahead of last year’s levels. “The business is doing OK at the moment but we all know it’s tough out there,” Peach Factory’s Peter Martin told the conference.

To download Ross Walker's presentation, click on the file right under Related Media