Cautious optimism as King bows out - City Comment
23 May 2013
Sir Mervyn King, the outgoing Bank of England governor, chose his final inflation report to provide his most optimistic speech for several years.
Thu, 23 May 2013 | By Sue Dodd, director, Agile IntelligenceSir Mervyn King, the outgoing Bank of England governor, chose his final inflation report to provide his most optimistic speech for several years.
Inflation will return below 2% within two years (although hardly utopia) and its economic growth forecast is upgraded to 0.5% for Q2, while the Confederation of British Industry reports early signs that lending is finally getting through to small businesses. This is certainly better mood music and, for some perhaps, is seen to vindicate the recent strength of stock market valuations, yet there remain some fairly large counter-arguments both on the economy and the stock market.
Real interest rates are below zero and this will persist for at least another two years, while the household income squeeze will continue to constrain consumer spending growth. Our dominant trading partner, the Eurozone, is back in recession with nine of its 17 members individually in recession – with even Germany only showing 0.1% growth in Q1 – and this chronic weakness was acknowledged by the European Central Bank (ECB) when it cut its euro base rate recently.
Further afield the slowdown of global growth, epitomised by China, is affecting oil and other commodity prices with spin-off impacts on country economies, which rely on their mining & minerals sector such as Australia – a fact now being confirmed by many recruiters. The oil price itself has fallen – a double-edged sword for the UK for both producer and consumer, as this contributes to a welcome slowdown in producer input prices and ultimately fuel prices but may impact negatively on the UK treasury.
However, the UK economic balance has certainly shifted a little more positively, and these are stirrings, which are welcomed. Contrarily, with growth apparently picking up, workforce figures are now deteriorating – employment has fallen and headline unemployment is rising, although jobseeker claimant numbers are still on an improving (falling) trend. Nevertheless, in the face of the more positive news and inevitable Treasury pressure, the IMF has watered down its demands for the chancellor to stimulate economic growth via infrastructure spending and credit rating downgrades seem almost like distant history.
With unemployment possibly on the rise but economic recovery tentatively broadening, the prospects for recruitment companies are complex, best illustrated by the caution surrounding forward forecasts in the recent round of results. Perhaps the latest figures on UK growth, job vacancy data, assured long-term low interest rates and early signs of an upturn in the private sector would all combine to rewrite some of the more cautious statements but, with so much weakness persisting in the Eurozone and a bumpy ride still in the UK, prospects in recruitment remain diverse, sector specific, delivery specific and, from the stock market point of view, at times mercurial.
For most UK-listed recruitment companies, share prices stand noticeably below their 2013 March/April high points – today’s market reaction to the Nikkei’s overnight correction suggests that, for the short term at least, their overseas counterparts may join them.
Inflation will return below 2% within two years (although hardly utopia) and its economic growth forecast is upgraded to 0.5% for Q2, while the Confederation of British Industry reports early signs that lending is finally getting through to small businesses. This is certainly better mood music and, for some perhaps, is seen to vindicate the recent strength of stock market valuations, yet there remain some fairly large counter-arguments both on the economy and the stock market.
Real interest rates are below zero and this will persist for at least another two years, while the household income squeeze will continue to constrain consumer spending growth. Our dominant trading partner, the Eurozone, is back in recession with nine of its 17 members individually in recession – with even Germany only showing 0.1% growth in Q1 – and this chronic weakness was acknowledged by the European Central Bank (ECB) when it cut its euro base rate recently.
Further afield the slowdown of global growth, epitomised by China, is affecting oil and other commodity prices with spin-off impacts on country economies, which rely on their mining & minerals sector such as Australia – a fact now being confirmed by many recruiters. The oil price itself has fallen – a double-edged sword for the UK for both producer and consumer, as this contributes to a welcome slowdown in producer input prices and ultimately fuel prices but may impact negatively on the UK treasury.
However, the UK economic balance has certainly shifted a little more positively, and these are stirrings, which are welcomed. Contrarily, with growth apparently picking up, workforce figures are now deteriorating – employment has fallen and headline unemployment is rising, although jobseeker claimant numbers are still on an improving (falling) trend. Nevertheless, in the face of the more positive news and inevitable Treasury pressure, the IMF has watered down its demands for the chancellor to stimulate economic growth via infrastructure spending and credit rating downgrades seem almost like distant history.
With unemployment possibly on the rise but economic recovery tentatively broadening, the prospects for recruitment companies are complex, best illustrated by the caution surrounding forward forecasts in the recent round of results. Perhaps the latest figures on UK growth, job vacancy data, assured long-term low interest rates and early signs of an upturn in the private sector would all combine to rewrite some of the more cautious statements but, with so much weakness persisting in the Eurozone and a bumpy ride still in the UK, prospects in recruitment remain diverse, sector specific, delivery specific and, from the stock market point of view, at times mercurial.
For most UK-listed recruitment companies, share prices stand noticeably below their 2013 March/April high points – today’s market reaction to the Nikkei’s overnight correction suggests that, for the short term at least, their overseas counterparts may join them.
- Click to read previous comment from Dodd and other recruitment equity specialists on recruiter.co.uk.
