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Comment: Economy on rise but wages stay flat

Wages are set to stay static in real terms until 2015, writes George Kerevan. Picture: TSPL

Wages are set to stay static in real terms until 2015, writes George Kerevan. Picture: TSPL

  • by GEORGE KEREVAN
 

WHAT’S in store for British businesses in 2014? For starters, they get their very own festival. The inaugural International Festival for Business takes place across June and July and we are promised more than 100 individual events.

These appear to be mostly professional conferences, but the organisers are confident they can attract 250,000 “business professionals” from Britain and abroad. I’m attracted to the National Cake Awards on 9 July, which will “recognise excellence in the manufacture and production of bakery goods”.

Next year, Britain’s manufacturing output will grow faster than the UK economy overall, according to the Engineering Employers’ Federation. We may finally see the required jump in capital investment that will lock in a return to trend growth. I have one caveat. The big winner in manufacturing in 2013 was the car industry, where sales and production are now at pre-recession levels.

However, this success was funded largely by one-off payment protection payouts. Unless motor manufacturers can tap into European exports, the market could mark time in 2014. Another good reason for the Bank of England not to raise interest rates.

House prices are set to rise 8 per cent in 2014, according to the Royal Institution of Chartered Surveyors. Construction starts should be up at 155,000 compared with 125,000 in 2013 – nowhere near meeting demand. But that’s good news for volume builders and for Britain’s 1.2 million landlords, two in three of whom plan to add to their portfolios.

The average UK fund investor gained 23 per cent in 2013, on the back of the surge in equities. Can it really last through 2014?

However, strong growth in the UK in 2013 should favour more IPOs. Possibilities include the over-50s travel agent Saga, discount retailer Poundland and even the TSB (bank scandals permitting).

2014 should be a good year for youthful entrepreneurs, thanks to poorer job security, especially in the banking and consulting sectors that traditionally attract top graduates. Driving this trend is the new Seed Enterprise Investment Scheme (or Seed EIS) introduced in April by the Chancellor to help small start-ups raise cash. Folk are just catching on to the fact that, via Seed EIS, the Treasury subsidises nearly 80 per cent of your investment. I like it.

Real wage increases in Britain will remain low next year – nearly at the bottom of the European league table. It’s not that firms are holding labour costs flat – nominal wages should rise by an average of 3 per cent in the private sector. But unlike Europe, strong UK price inflation is still outstripping nominal wage hikes. Don’t expect real wages to rise until 2015. One down for retailers.

What impact will the independence referendum have on business during 2014? The answer is… not a lot.

In a recent survey by the British Chambers of Commerce, 90 per cent of companies responding said the referendum is having no substantive impact on their business, to date. Of course, that might change nearer 18 September, especially if the polls narrow.

 

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