11 March 2010
by Graeme Davies
The recent upward revision of the UK’s Gross Domestic Product figure for the fourth quarter of 2010 from 0.1 per cent to a slightly less anaemic 0.3 per cent confirmed our emergence from recession and the first positive quarter of growth for the UK economy since the first three months of 2008. But it is a little bit early to be cracking out the bubbly.
The driver of the recovery was the services sector which bounced by 0.5 per cent and subsequent manufacturing data also suggests a strong performance from this sector. But fears remain about the true strength of the UK recovery and whether the surge in the final quarter of the year was simply exacerbated by restocking following the huge contraction during the previous year and a splurge of consumer demand in the lead up to Christmas, and ahead of the return of the VAT rate to 17.5 per cent.
Concerns are growing about a dreaded ‘double dip’ recession striking the UK, especially following the severe weather that affected the country during most of January and February. Its closest neighbours, and biggest trading partners, in the European Union appear to be lurching back towards the precipice as huge fiscal deficits threaten the former fast growing economies of the periphery and the main drivers, France and Germany, threaten to stall.
Even the Treasury remains somewhat circumspect about the strength of the economic recovery. Reacting to the GDP revision, a Treasury spokesman said: “Recent data in the EU and elsewhere has indicated that there are risks and uncertainties to this recovery.”
The Bank of England is also keeping a keen eye on developments with its programme of quantative easing temporarily on hold and the printing presses ready to roll again should the economy falter.
So what would a ‘double dip’ do for the facilities management sector? Thus far the sector has followed a classic recessionary path as businesses have scaled back on costs and weaker operators have either gone out of business or been taken over by the stronger players. This has left the sector looking leaner and more able to deal with a second period of recession.
Of course it would be tough, and more companies would struggle but the most diversified and also the quality niche players would most likely survive, especially with the wave of government outsourcing business likely heading in the sector’s direction.
This uncertainty is likely to continue, and probably intensify, over the next 10 weeks and beyond until the identity of the next UK government is known.
Until then, the pound is also likely to remain under pressure as investors struggle to get a handle on how rapidly the coming retrenchment in public sector spending will kick in and how severe it will be.
This weakness in the pound, however worrying to the politicians, could actually turn out to be a boon for companies with significant overseas operations including facilities management players like Balfour Beatty as they translate their dollar earnings back into sterling.
Perhaps some clouds have silver linings after all.
Graeme Davies writes for Investors Chronicle
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