EY ITEM Club Spring Forecast 2014
“With the EY ITEM Club predicting steady UK economic growth and rising demand in the UK and internationally, businesses’ efforts to ensure their business models are appropriate for these conditions will need to address both opportunities and challenges in an integrated way."
Given events in Ukraine, companies clearly need to keep an eye out for external geopolitical shocks. But more generally, as growth becomes embedded but inflation remains subdued, business models may come under pressure.
In particular, a low-inflation environment will make it hard to raise prices to customers in many sectors. But the labour market appears to be heating up, with pressure starting to emerge on wages, and the prospect of skills shortages and a war for talent.
Equipped with a business model geared to manage these risks, companies should be able to capitalise on a range of opportunities for profitable growth. The recovery in the US, renewed stability in the Eurozone and growing demand for branded consumer goods in China will create openings for UK exporters.
Meanwhile, at home, business-to-business suppliers should position themselves for opportunities created by rising business investment. Steady growth of around 2% in consumer spending year-on-year will give consumer-facing businesses a decent target to aim at. And ongoing efforts by government to increase employment and deliver public services more efficiently will generate opportunities for innovative businesses.
Overall, this is no return to boom conditions: the mantra of ‘steady as she goes’ applies as much to business as the wider economy. But while businesses need to be measured in their responses, they should also move quickly to seize opportunities before they slip away.
You can read the rest of our EY Chief Economist Mark Gregory’s blog, Steady as she goes, here. (http://markgregoryeconomics.wordpress.com/)