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Ivan Perkovic Head of Economic Research

South East Business Development Advisory Group/Business Link Advisory Group. South East Economy Update & Potential impact of public sector cuts on the South East (December 2010 Update) January 2011. Ivan Perkovic Head of Economic Research. Overview. Economy Update

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Ivan Perkovic Head of Economic Research

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  1. South East Business Development Advisory Group/Business Link Advisory Group South East Economy Update & Potential impact of public sector cuts on the South East (December 2010 Update) January 2011 Ivan Perkovic Head of Economic Research

  2. Overview • Economy Update • Business activity and new orders • GDP growth • Prices and interest rate • Business and consumer confidence • Labour market • Potential impact of public sector cuts on the South East economy • Employment • GVA • Spatial distribution • The Outlook for 2011

  3. Business Activity stalls in December • Following strong growth in November business activity stalls in December • Service sector PMI in December fell for the first time in almost two years (UK) • Bad weather impacts on growth, but it is not the only factor • New orders also affected – some evidence of weakening domestic demand • Impacts on GDP growth in Q4

  4. Slower GDP growth in Q4 • UK GDP growth revised down in Q3 and in previous quarters • Annual growth still above the long run average • Weakening growth in activity and new orders in Q4 impacts on GDP growth in Q4 • Uncertain outlook

  5. Inflation on the increase • Sharper than expected increase in UK inflation – food, energy prices • Inflation set to rise higher in early 2011 – VAT, transport fares, fuel, alcohol & tobacco duties • Pressure intensifies on the Bank of England to increase the rate • Temporary effect as CPI (exc. indirect taxes) = 2%? But Core Inflation = 2.8% • Rising input prices and a gradual return of pricing power in the South East?

  6. Confidence continues to fall • A small recovery in consumer confidence in December, but downward trend throughout much of 2010 • Business confidence continues to weaken • High - v. large businesses (>1,000), small (10-49), F&B Services, Manufacturing • Low – micro businesses (<10), Retail & Wholesale, Construction, Transport & Storage

  7. Labour market – improving?

  8. Potential impact of public sector cuts on the South East – Update (December 2010)

  9. Overview • Preliminary report (August 2010) • Update (December 2010) • New public/private sector data • New Office for Budgetary Responsibility (OBR) forecasts • CSR 2010 • Results also driven by the size and composition of public sector at local level

  10. Increase in public sector dependency Proportion of public sector employee jobs by Local Authority (District/Unitary) Growth in public sector employee jobs by Local Authority (District/Unitary), • Use of public administration, education & health overestimates the size of public sector across the country • ‘True’ public sector employment in the South East is around 642,000 or 17% of the total • Concentration largely in coastal and eastern local authorities • The fastest increase in dependency on public sector jobs in the country

  11. Total Effect - Employment • Lower employment effect than in August 2010 (OBR forecasts, CSR and composition of public sector in the region) • Total effect in the range of 1.9% - 2.1% of all employee jobs in the region, greater in eastern counties. • Indirect effect could be greater in those areas with large private sector than shown here.

  12. Direct Effect - Employment Potential (Direct) effect on employment, by Local Authority (District/Unitary) - Absolute Potential (Direct) effect on total employment, by Local Authority (District/Unitary) - % • Greater effect in absolute terms likely in large towns or places with significant number of public administration jobs. • Looking at the share of employment more appropriate – greater potential effect along the coast and in (largely) eastern Local Authority District. • Workplace based estimates – commuting could have a significant impact on some areas

  13. Total Effect - GVA • Lower GVA effect than in August 2010 (lower employment effect) • Total effect in the range of 4.4% - 5.2% of baseline GVA in the region, greater in eastern counties. • Indirect effect could be greater in those areas with large private sector than shown here.

  14. The Outlook for 2011 • Forecast convergence between OBR and the consensus forecast • UK economy forecast to expand by around 2% in 2011 • South East forecast to outstrip UK forecast but growth well below long run average • Significant disparities in GVA growth within the South East projected in 2011 and beyond

  15. Thank you SEEDA Research & Economics Email: research@seeda.co.uk www: http://www.seeda.co.uk/what-we-do/economic-intelligence-and-research

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