Q3: What Happened? What can we do?

Growth slowed: The pace of US, UK and German growth slowed sharply in the quarter.

Gloomier outlook: OECD significantly revised down its forecasts for the global economy. ONS downgraded UK Q2 growth to 0.1%

Emerging markets cooled: India’s GDP grew at the slowest pace in more than a year, China’s equity market underperformed the US market despite the economic turmoil in the US.

Volatility jumped: Equities gyrated, torn between fears of a double dip and hopes of more quantitative easing. The VIX index, a measure of stock market volatility, averaged 35, twice the level of the previous seven months. Equity prices are 20% lower than the end of Q2.

Inflation stayed high: US and UK inflation rates rose again and are close to a three year highs.

Quantative Easing: The BoE issued another £75bn to help small businesses

Market expectations for interest rates dropped back: Financial markets now assume that interest rates across the industrialised world will stay lower for longer; until late 2012.

Sovereign debt concerns rose: S & P downgraded USA’s credit rating by one notch to AA from AAA.

Retailers Collapsed: Habitat, Jane Norman, Focus DIY, OddBins all locked up for the final time

Domestic Market: The Q3 domestic balances recorded disturbing declines; weak for both manufacturing and services.

Export Market: Despite attractive currency positions, Export balances worsened in Q3, for both manufacturingand services dropping to the lowest level for 2 years.

Investment: The Q3 plant and machinery investment balances worsened for both sectors although investment in training rose slightly.

Cashflow: Businesses in both manufacturing and service sectors reported negative positions at -8% and -6% respectively

Capacity Utilisation and Cashflow: The percentage of manufacturing firms operating at full capacity is unchanged, at 34%, with the percentage of Service firms operating at full capacity falling four points to 34%.


The Q3 results point to a deterioration in the economic situation, with worrying signs of stagnation in the domestic economy. The disappointing balances for exports, and for investment in plant and machinery, suggest that the much-needed rebalancing of the UK economy is not yet occurring. Negative cashflow balances indicate financial pressures. Given the worsening global economic prospects and the acute problems facing the Eurozone, there was a clear need for the MPC and the Government to make every effort to avert risks of recession – hopefully now seen through the recent increase in the QE programme to £275 billion which while welcomed, sees more radical measures needed; these should be mainly concentrated on purchasing securitised SME loans and other private sector assets.

On its part, the Government is under pressure to introduce a comprehensive deregulation programme, and re-prioritise its spending plans to promote growth, investment and exports. The Government must seemingly persevere with the deficit-cutting plan, to stabilise our public finances and protect our AAA credit rating. But radical changes are needed within the overall spending envelope, to avoid setbacks and sustain the recovery.

However…. At a Micro-Economic level it can be a very different tale. We are seeing plenty of businesses that are fairing well, and even more that are doing OK. Even this week we have started working with three different businesses that are experiencing in excess of 50% per annum growth, one of which is planning a £bn IPO.

Some of these businesses have the benefit of a product advantage, others have raw commercial advantage, but for most it is a combination of sound controls and solid, real-world, commercial acumen.

This all boils down to people. Strong, common sense, driven Leaders – understanding their strengths, covering their weaknesses with others strengths.  But not just Leaders: ensuring that all the people in your business are engaged and motivated – and informed of where the business is, and is heading. A spread of behavioural profiles, and good element of entrepreneurialism and a well communicated strategy is vital. People being king…..that’s why the best recruitment businesses and head-hunters are continuing to buck the trend.



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