The question that seems to be hanging on everyone’s mind at the moment is: what is going to happen to the UK economy in 2012 and when can we expect a return to growth? Professor Joe Nellis of the Cranfield School of Management, a frequent and popular lecturer at the Annual Haysmacintyre Conference in London, delivered his forecast on Wednesday. He predicted that any UK recovery was likely to take the form of a “L” shape, similar to that of Japan in the 1990s, quite possibly resulting in a “Lost Decade”.
Although he did not foresee any noticeable rise in economic growth before 2013/14, the good news was that the slight recovery in the USA economy at the moment could counter balance the effects of the Euro-zone debt and any default crisis, which would have a major impact on the UK and global economy. However, unemployment in the UK, he predicted, could rise in 2012 by another 200,000 with youth unemployment reaching over 1 million. A lack of increase in earnings combined with “savage” public sector spending cuts and the threat of inflation, due to quantitative easing, could lead to a rise in interest rates. The debt overhang would not be resolved for a long time and would become the “new normal”. The UK’s reduction in spending and increase in debt repayment would result in a slower economic recovery, but ultimately this would be better for long term prospects.
Addressing the implications for independent schools, Professor Nellis highlighted the affordability of school fees for parents being the number one issue as a result of higher tax burdens on middle/upper incomes, the squeeze on bonuses, interest rates rises and public sector cuts. However, the level of “financial stress” suffered would vary between regions, but this was likely to widen the growing North – South divide. For pupils, the higher costs of further education and a stagnant recruiting market raised concerns about the prospect of a “lost generation”. On a more positive note, the weak position of sterling was good for exports and would present opportunities for taking on more overseas students in both UK schools and universities.
haysmacintyre is a leading firm of Chartered Accountants and tax advisers, who have experience and expertise in the not for profit sector, especially with independent schools. www.haysmacintyre.com