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‘2004 – Not
a Year to be Reckless’
Jeremy
Priestley, Managing Partner of The P&A Partnership
For
the past 3 or 4 years my message to businesses has been one
of caution because of the underlying economic trends that cut
into profitability. Looking forward to 2004 I have little optimism
and see no reason to change my theme.
During the past 12 months, Industry has had
to cope with a significant increase in pay roll tax, a major increase
in Employers and Public
Liability Insurance – not forgetting the significant increase
in the statutory minimum wage that has put pressure on wage levels
above the minimum. All this against a background of the relentless
rise in competition from low cost manufacturers in countries outside
the scope of EU regulations; much less our own Health and Safety requirements.
We have seen the unprecedented continuation
of a buoyant property market and little let up in retail spending.
Whilst both have been
encouraged by the lowest interest rates for 50 years, there is arguably
too much speculation in the residential investment property market,
and a ‘spend now’ policy by Mr Average who finds it unrewarding
to save for his future.
We are seeing house price increases of up to
20% a year – but
importantly house inflation over the past 6 years has outstripped
growth in personal income. In that environment it seems hardly sensible
to remortgage to purchase other assets or to fund personal debt.
So here we are with the personal debt of the
population approaching a trillion pounds and the average mortgage well
in excess of £100,000.
We have had a trade gap for 7 years, currently of the order of £4Bn.,
that is not sustainable, yet is seldom mentioned. We are seeing rising
interest rates caused by increasing government borrowings and by
global movements.
What’s the outlook for 2004? A further increase in base rates
by mid year and another towards the end of the year will increase
interest on mortgage repayments by 30-40% - for the average mortgagee
this could be in the range of £100-£125 per month. Add
to this a further increase in income or NI Contributions to fund
government expenditure and you start taking out a significant amount
of retail spending. Enough to create on oversupply in housing ….and
the downward spiral that brings back memories of earlier times. Markets
always have a tendency to exaggerate and having moved upwards, it’s
now capable of shooting the other way, and which for some will bring
the prospects of negative equity.
The ‘city living’ concept has brought a new dimension
in retail to parts of the city centre – there will have been
high costs of entry and little time to rebuild resources. Other parts
of the city seem to be left behind by this phenomenon, just as the
Centre was when Meadowhall was built and action is needed as markets
shift. I urge retailers to consult with their business advisors before
the storm hits and take action sooner than later if my predictions
are correct.
Difficult decisions needs to be made as the business cycle changes.
If your business is in difficulties and you need professional advice
please telephone me on 0114 2755033.
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