Double-dip recession: The threat has receded but watch the blip

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Stephen Archer offers his thoughts on whether a double-dip recession is on the cards, and the possible business and economic trends and impacts for 2011.
 
The double-dip question will not go away – there is a vast core of pessimists talking this up despite the number of good news items coming through; growth, stable unemployment, better US growth figures, strong global growth etc. But what considerations do the UK’s business owners and entrepreneurs need to have for 2011?
Consumer demand remains moderate and many are still reducing debt and those that have cut personal debt are being more cautious. Housing may stay in the doldrums but the DIY market will doubtless do well in 2011. The VAT rise is widely thought to be threatening our recovery but I do not see this happening. Many retailers will swallow the 2.5% and with the net price rise being 2% then many will not feel that the price change is very large. Think of a £100 invoice rising to £102. Food, fuel and raw material price rises are much more significant. Again, in a more confident economy every business, including SME’s, should not be afraid to pass on cost rises.
The most likely cause of a second dip would be a climate of self fulfilling prophecy. Everyone becomes a little more cautious and - as a result - most indicators go the wrong way. However, this type of activity would only cause more of a blip. The recovery will be bumpy (some call it choppy) and so we must not read too much into a new negative trend. Nor must we over react to a rise in inflation – this is likely and is a good sign of energy in the economy.
Government reports tell us we are officially out of recession but it doesn't feel like it for many SMEs. There is a 'lag effect' and there are still redundancies and disinvestments going on. Soft trading conditions will remain the norm during the first half of 2011- we are certainly not out of the woods yet.  But, on a more positive note, business failures and business unemployment figures are slowing, order books are showing signs of more health but businesses need to keep fighting. Manufacturing and the SME engineering sector is showing good signs of recovery – this will continue.
So for small business and entrepreneurs what does this mean? We are not in boom times and we are not bust either. Trading conditions for most businesses – especially SME’s may remain challenging for another 12-24 months. Where should SME leadership energy be placed now?
Customers need to be given stronger reasons than ever to buy products so investing in innovation, marketing and differentiation is essential. Know what your customers want and even more about what your competitors are
offering. Competitors of all kinds are the minimum benchmark for which to aim. Equalling the value of competitive offerings is rarely going to suffice - always ensure you are moving to stay ahead; never stand still.
Strong leadership is needed too to re-engage staff and move the business forward. The recession highlighted many examples of poor leadership as many senior executives struggled to cope with the new challenges they faced. Now is the time for leaders to create a compelling vision, make big decisions, take risks, adapt quickly to change and jump on new marketing opportunities. Unfortunately, this kind of leadership is too often stifled in UK companies, with bold decision makers sidelined. To succeed, leaders need to stick their heads above the parapet and demonstrate their vision and confidence in the future. Those that do will find they have the support of a motivated and energised workforce behind them ensuring they will be more likely to achieve their  goals. Speed is of the essence. 
Even if the Euro zone hits more problems I do not believe we will witness a second dip, and I consider that the UK will be one of the better economies to base a business in during 2011. I’d advise SMEs to begin exploring the plethora of opportunities that will come through. Paradoxically, many of these will come about as a result of more public sector outsourcing as a result of PSR cuts.

We must not be surprised if there is a weaker quarter in early 2011. Even if it was negative by 0.1 percent, I would not call this a sign of a real dip – just more of a blip. 

Stephen Archer is director at Spring Partnerships.

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