UK Market Trends

 - 22nd September

It is amazing how a little candour from our political masters can bring such a sea change in thinking about the business outlook. Conversations with business leaders in the last few days have had a completely different focus  than they did a week ago. This has been the result of the caving in of the Prime Minister on the issue of public sector spending cuts and the triumphant outpourings of Messrs Osbourne and Clegg in response.

Now data from PWC, the accountant, shows which sectors will be hit the worst. They forecast that a downturn in public spending is likely to impact on pharmaceuticals, medical and defence equipment most of all. However, it is unlikely that most businesses will escape any cutbacks. The Centre for Economics and Business Research has published data that shows that the public sector accounts for 11% of total paper demand, 15% of the legal service market, and 16% of demand for computers and office machinery.

Those who have the choice will be searching for private sector customers to offset any drop in public spending, but it is not at all clear whether the private sector economy is strong enough to absorb additional capacity. A hard landing in some sectors does appear to be inevitable, with consequences for the recovery of the overall economy. When the story of this phase of economic management is told, it is unlikely to reflect well on those who invested now to pay later in the good times, in a way that left us very vulnerable to the impact of a global downturn.