AT the Independent Travel Agents’ Conference in the Algarve I plan to set out how the UK and world economy will develop in a question-and-answer session with Travel Weekly editor Jeremy Skidmore.
This year will be difficult for the UK, as the slowdown in export-related sectors is spreading to the rest of the economy. Household spending has moderated in response to poorer job prospects, mortgage and tax increases in 1997 and 1998, and the fact that windfall payouts have not been repeated.
The slowdown is being reinforced as businesses cut their investment and run down unwanted stocks. For this year, the Confederation of British Industry predicts that consumer spending will grow by 1%, compared with 4% in 1997 and a long-run average of 2%. Slowing household expenditure will make the job of selling overseas holidays to UK residents that much more difficult.
We are, however, well placed for a recovery in 2000 and beyond, with consumer spending accelerating. Low inflation has allowed the Bank of England to cut interest rates recently. Aside from a brief spell in 1994, base rates are now the lowest since 1972.
Spending will also be underpinned by strong household finances, and by this year’s Budget. We expect UK consumer spending to gather pace through 2000, with normal rates of growth reattained in 2001 and 2002. World prospects appear on the face of it to be reasonable, with forecasters in the US and mainland Europe expecting their countries to avoid a UK-style slowdown.
Japan is expected to remain stagnant but, overall, an acceptable rate of expansion is forecast for the industrial world.
The CBI forecast suggests that exports will recover strongly, on the back of this world growth, and helped by an assumed decline in sterling. If the forecasts prove correct, the UK incoming tourist industry will benefit.
However, we are less confident about global events. The possibility of the US economy coming to an abrupt halt cannot be ruled out. Business confidence is weak on mainland Europe and this could stifle growth there. Nor are the economic problems seen in various emerging economies behind us. The exchange rate is another uncertainty. Looking beyond the next few years, there are several new factors to come to terms with.
These factors include European economic integration, in particular the single currency, and aspirations in some countries for greater tax harmonisation. We also appear now to be living in a world of price stability, rather than an inflation, and in a world of low interest rates. This will have implications for businesses and households.
“Business confidence is weak on mainland Europe and this could stifle growth there”
Douglas Godden is head of economic policy at the Confederation of British Industry