Ernst & Young ITEM Club UK Spring Forecast 2013

Since the start of 2013, confidence has risen across the economy. While events in Cyprus have rekindled concerns over the Eurozone, overall sentiment has improved, measures of risk and volatility are down, and financial markets have touched record levels. There are also indications that credit availability is improving.

However, business in general still seems to lack the confidence to invest or move decisively. This inertia is dangerous: it means UK business risks missing opportunities and being left behind as the economy starts to progress.

While the overall economy has shrunk since 2008, sectors such as Automotive, Media & Publishing, IT and Consulting have all grown by over 10%. Given this disparity, what’s needed is a detailed, forward-looking examination by sector and segment to confirm potential opportunities.

The indicators suggest a tentative upturn in consumer spending is already underway. If favourable conditions persist we could see an acceleration. Consumer-facing businesses should review their resources to ensure they can respond flexibly, and test the fitness of their propositions for future market conditions. The consumer of 2015 may want a different offer from the consumer of 2010.

Exporting remains challenging, but with the pound having fallen, and growth reviving in the US and developing markets, opportunities will emerge. UK exporters need to identify and target those markets offering the biggest growth prospects, gaps to sell into, and potential for competitive advantage.

With banks signalling higher credit availability, now may be the time to refinance or plan for increased leverage.

Any plans made now must have the ability to be implemented quickly. It’s usually early movers who capture the most value.

Mark Gregory, Ernst & Young Chief Economist

The outlook for property and construction

The property and construction sector plays a pivotal role in the UK economy, generating much-needed housing and infrastructure, and creating a substantial number of jobs.

It can also be instrumental in building the confidence that helps to drive economic recovery, by delivering tangible physical evidence of productive economic activity and employment. Furthermore, the ‘wealth effect’, the beneficial impact on consumer confidence from an improving housing market, is well known.

If investors accept that the current UK market conditions provide a solid, if unspectacular, foundation for an upturn in property and construction, and then build on that foundation by making use of the incentives in the recent Budget, then there should be an attractive set of trading conditions that will improve the fortunes of this sector, and hopefully of UK plc, for the next four to five years. The likelihood of this scenario is underlined by the fact that major institutional investors are once again investing in the housing sector.

Dean Hodcroft, Head of Real Estate for UK & Ireland, Ernst & Young