The numbers of cranes on a city’s skyline are often taken as an indication of the health and vibrancy of its economy.
Not only are cranes evidence of demand, money and resources but also of jobs, not just in construction but, eventually, for occupiers of the buildings.
Whether such observations hold true in the current economic circumstances is open to question.
The most recent Markit/CIPS monthly snapshot on construction for November, published on December 2, would seem to reinforce the impression of health showing construction activity expanding to an eight-month high, albeit purchasing managers are also reporting a steep increase in materials costs.
On the other hand, however, on November 22 it was reported that a large Manchester-based heavy machinery plant-hire group, Hewden, with 40 branches across the UK and a workforce of 750, had gone into administration. 251 people, many of them crane operators, were made redundant. The Guardian report said Hewden was owned by private equity firm Sun Capital Partners, which had warned in October that market uncertainty following the Brexit vote had adversely affected a number of large construction and investment projects.
Yesterday’s publication of the IHS Markit/CIPS purchasing managers’ index for the Service sector also showed a rise from 55.2 in November from 54.5 the previous month. But here, too, there was a note of caution from Chris Williamson, chief business economist at IHS: “Rising prices – often linked to the weaker pound – are a big concern, however, and suggest that inflation is set to lift higher.”
These examples illustrate how difficult it is for SMEs to assess what they might be facing in their economic future and how best to prepare for it.
Known knowns and known unknowns
There are a number of triggers that could affect what happens both to the UK, EU and US economies and there are plenty of question marks over all of them.
First and most obvious in the UK, as the Supreme Court hearing gets under way into whether parliament’s consent is needed to trigger Article 50, is the uncertainty over the start date, length and likely outcome of negotiations to leave the EU.
Equally it is unclear whether the lower value of £Sterling will encourage or discourage investment in the UK. However, the fluctuations in the Exchange Rate and their effect on £Sterling in relation to the $US and to the €Euro will doubtless continue.
Yesterday, £Sterling had risen against the €Euro following the Italian referendum on constitutional change, in which the Government was defeated. Where will this leave both the fragile banks in Europe’s third largest economy and also the EU economy?
Perhaps the biggest unknown is what will happen when President-elect Trump takes over in January 2017. How protectionist will he be? Will he follow through with fiscal stimulus, which is likely to lead to both inflation and a rise in interest rates and a shift from economic recovery to recession as happened in the UK’s Heath Government in the 1970s? This time with considerably higher personal debt there is less room for manoeuvre and in a much larger economy than when UK asked for an IMF bail-out.
Then there is the recent seeming resurgence of OPEC in controlling output and thereby the price of oil.
There are many uncontrollable factors in a globally interconnected economy that are likely to buffet any national economy and affect its businesses, regardless of Brexit and whether SMEs are trading locally or are exporters.
The omens are not good but inevitably for some SMEs the prospects may be fantastic and for others quite the opposite. What is sure, though, is that for the foreseeable future the uncertainty of unknown unknowns is the new normal.