A few weeks ago the Office for National Statistics (ONS) provided initial estimates for the performance of the UK economy in the first quarter of 2019. The headline growth in gross domestic product (GDP) from the previous quarter was a reasonably solid 0.5%, which represents a perfectly acceptable annualised growth rate of 2%, well above that achieved in the past two years. Further, unemployment remains at historically low levels and wages are increasing at their highest rate for several years. So what can possibly go wrong?
To assess the potential for our economy to sustain an annual growth rate of 2%, we need to remind ourselves that, more than just about any other developed economy, our economic growth rate is dependent on consumer spending which is itself dependent on us all staying in work and receiving wage increases that exceed the rate at which prices are rising, as well as having the confidence to spend most of our surplus cash. Over previous years, when wage increases have been weak, we have managed to maintain our spending power through saving less and borrowing more, but clearly this is unsustainable on a long term basis.
So can growth in real wages continue at the higher rates we have seen more recently? Real wage increases ultimately have to be self-financing and therefore can only be generated by those employed to produce more, in other words through increased productivity. The UK has fallen behind most other large countries when it comes to improvements in productivity; there has been no real increase in UK productivity since the financial crisis of 2008. So why does it take the average UK worker to produce in five days what a German worker can produce in four?
It’s not a simple answer. One of the biggest factors to consider is the quality of plant, machinery and IT infrastructure that allows people to work and be productive. A big threat to future productivity is that in the past year, there has been a quarter by quarter reduction in capital equipment expenditure by UK businesses. Output in the UK economy might be rising but it is being achieved by employing more people rather than giving existing employees better equipment. This approach cannot deliver the long term real increase in wages we all need for future prosperity.
I recently attended the opening of Amazone’s new Training, Education & Research Centre near Doncaster. Amazone manufactures high tech agricultural equipment and listening to the presentations and watching the equipment being demonstrated provided great insight into issues confronting all UK businesses. There is an urgent need for farmers, as well as other industries, to improve productivity and cut costs and cutting edge technology is available for equipment and software to achieve this objective.
The other big ‘take away’ came from the opening address by Christian Dreyer, a member of the family who owns Amazone. Mr Dreyer said that the decision to invest in the new premises was taken despite all the uncertainty associated with Brexit because as a family-owned business, not answerable to the demands of institutional shareholders, they were in a position to back their own judgement and take a long term view. It is surely no coincidence that many of the largest German companies remain under family control and as a country their record in business investment is second to none.
In conclusion, increased investment in capital equipment that takes advantage of the recent huge advances in technology is now a priority for UK businesses. If we can replicate the German philosophy, the good news is that there is no shortage of funding available from leasing companies to facilitate the investment necessary with minimal initial cash outlay on the part of those needing new equipment.
Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.
If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.