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HSBC Economist Outlines Prospects for UK Economy at Rothmans and HSBC Event

In a presentation to 150 Solent business people, Mark Berrisford-Smith, HSBC’s Senior UK Economist, recently outlined the prospects for the UK economy. Speaking at an event that was co-sponsored by HSBC and Rothmans, Mr Berrisford-Smith told his audience that a steady recovery was likely but that it would be 2013 before the economy was back to the size it had been at the start of 2008. The event was co-chaired by Rothmans Partner Andrew Bennett and HSBC’s Area Commercial Director Simon Smith, and held at the Solent Hotel in Whiteley. A copy of the presentation from the event is available here.

Looking at the global picture, Mr Berrisford-Smith said that future growth would be driven by the Far Eastern economies and, drawing a parallel with the football World Cup, he said that if results were judged on economic performance, China would defeat India in the final. On its economic performance, the UK would go out in the Round of 16.

Reviewing the implications of the Budget and trends in key economic indicators, he expected the recovery to continue, albeit in a somewhat lacklustre fashion. A double-dip recession was not inevitable, but much would depend on events elsewhere, especially the fall-out from the sovereign debt crisis in the Eurozone.

For the next five years, he expected growth of the economy to average around the 2% mark, compared with the more robust 2.5-3% that we had become used to before the recession. This was inevitable given that consumers would naturally be unwilling to take on debt in the way that they used to, and that the public sector would be contributing very little to growth. To make matters worse, there was little evidence that exporters had been able to take advantage of the lower pound to boost overseas sales.

While official interest rates would soon have to rise, the Bank of England was still hoping to delay the first move until early next year. But with the annual rate of inflation still above 3%, it was possible that they would have to act sooner. Whatever the timing of the first increase, interest rates were likely to remain at historically low levels of under 4% for several years to come.

For businesses he warned that credit would not be as plentiful or as cheap as it had been in the years prior to 2007. With subdued growth at home, he urged them to focus on exports to the Far East and other developing economies. Describing the Eurozone as the “Twilight Zone”, he suggested that British companies’ should seek to make inroads into faster-growing markets further afield.

Looking specifically at prospects for South-East England, he remarked on the significant positive difference between this region and the rest of the UK. He said, “The South-East will continue to power the UK economy, and possibly more so than in the past, partly because it is export-oriented and has a large concentration of value-adding businesses in sectors such as pharmaceuticals, defence, electronics, software and financial services. It also has a relatively low dependence on the public sector.”

Despite the austere background, Mr Berrisford-Smith ended his presentation on a note of optimism about conditions in the UK, pointing out that compared with much of the period from the 1960s to the 1980s, the country was not suffering from the rampant inflation or endemic industrial unrest that had blighted those years.

The event ended with questions, coffee and networking.

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