Economists are predicting green shoots, but will they bloom or wither in Yorkshire? David Casey assesses the health of the region.
Is the worst behind us? That’s the question everyone wants answered at the moment, yet it’s still impossible to predict. While buoyant trading results in certain sectors suggest there are chinks of light at the end of the tunnel, streams of gloom and hardship always manage to dim the glow.
The recession deepened more than expected in the first three months of this year, with a “slow and fragile” recovery forecast. A report published by consultancy The Work Foundation in April highlighted just how far the region has fallen. Of the top ten places in the UK worst affected by the downturn in terms of job losses, 50 per cent was taken up by towns and cities in Yorkshire, with Leeds ranked second behind Birmingham.
In Leeds, the number of people seeking Job Seekers’ Allowance in February 2009 stood at 21,558 (4.3 per cent of the population) compared with 12,628 a year earlier. In Sheffield this was up from 5,554 to 14,017. Analysts have also predicted this to have deteriorated further. So just how bad is it?
“The economy remains deeply troubled, and the first quarter of this year has been tougher than expected,” says Andrew Palmer, CBI director for Yorkshire & the Humber. “Companies have been running down their stocks of completed goods, which is having a real impact on output, jobs and investment. Anxious consumers are spending less and building a savings buffer.”
Palmer says it is difficult to build a clear picture of how Yorkshire’s economy will perform, but believes there are a few tentative signs that the steepest phase of the recession is behind us. “The banking packages, aggressive monetary policy and fiscal support will steady the pace of decline from here on,” he says. “The recession is by no means over, but we will see a return to weak growth by spring 2010.”
While Chancellor Alistair Darling’s Budget forecast that the UK economy will grow 3.5 per cent in 2011 was met with scepticism, partial normalisation of financial markets has brought reassurance. The CBI is predicting the rate of GDP decline will slow through 2009 and make a fragile improvement to reach quarter-on-quarter growth of 0.2 per cent in the second quarter of 2010, helped by aggressive monetary policy, a weaker pound, low inflation and more fiscal support.
A shard of optimism then, but is it being felt among Yorkshire businesses? Feelings are mixed, according to The Business Snapshot Survey, undertaken by BMG Research on behalf of Yorkshire Forward. Of the 433 private sector companies surveyed in April, many are hopeful that domestic orders, prices charged to customers and profit margins will not deteriorate further. However, the rising cost of goods, access to finance and cash flow are troublesome.
“The short-term view from the region’s businesses is that trading conditions look set to stabilise,” says Patrick Bowes, chief economist at Yorkshire Forward. “Profit margins and cash flow are important issues, but on balance more companies are predicting a greater stability to domestic sales, which is welcome news after the downturn in domestic markets of the last quarter of 2008.”
But that news has come too late for many. Figures from PricewaterhouseCoopers (PwC) indicate that 595 companies in the region became insolvent in the first three months of 2009 – up 14 per cent on the previous quarter and up 67 per cent compared with 2008. Businesses in the construction sector were worst affected, followed by business service firms and companies in retail.
“We are working with businesses in many sectors and, unfortunately, many companies are leaving it too late to ask for help,” says Steve Ellis, a partner at PwC in Leeds. “Where rescue capital is scarce, it is obvious that the sooner problems are recognised, a solution is more likely to be achievable – and that doesn’t have to be insolvency.”
While better cash management could help some, urgent action is needed for others. The financial services industry is most in need of help. Although the taxpayer came to the rescue of Bradford & Bingley and HBOS, Tom Riordan, chief executive of Yorkshire Forward, says the sector needs to “future-proof” itself. Deloitte estimates the sector in Leeds will have contracted 10 per cent before the upturn and take a decade to recover.
Riordan says: “Our priority is to protect as many jobs as possible, while ensuring the industry is primed to make the most of opportunities that will allow it to grow.”
A taskforce set up by the regional development agency will look into developing new training courses to ensure the workforce is primed to deal with the financial situation, and a plan to encourage redundant industry workers to set up on their own.
It’s hoped similar schemes can revitalise other sectors. In the media industry, where ITV has opted to mothball its Kirkstall Road studios in Leeds and shift production elsewhere, Screen Yorkshire is leading a support package to protect the production base and fund retraining. In construction, which has seen building grind to a halt and casualties such as KW Linfoot, Leeds City Council is pushing ahead with its housing and arena plans, while universities are continuing their redevelopment schemes. It’s not a solution, but it’s a start.
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