21 October 2010 | Lindsay Clark
The cuts announced in yesterday’s Comprehensive Spending Review (CSR) significantly increase the risk of a double dip recession in the UK, creating problems for buyers in all sectors, according to a senior economist.
Chris Williamson, chief economist with Markit, which regularly surveys purchasing managers, said that research among buyers had showed that business confidence was on the wane because of the spectre of massive cuts in public spending and the resultant job losses.
Although Chancellor George Osborne said departments outside health and international aid would see average spending cuts of 19 per cent, less than the 25-40 per cent cuts anticipated earlier this year, the arrival of the CSR will do nothing to assuage fears over the economy, Williamson said.
“They have not watered down the spending cuts compared to what was outlined in the emergency budget,” he said. “What we’re worried about, given the data we’ve seen over the past four or five months from purchasing managers, is that the emergency budget had a big hit on business confidence.”
Given the fall in exports from the UK in recent months, the timing of the cuts increased the risk the UK would slip back into recession, he said. “We’re probably in for a sustained period of weak confidence.”
This could create a problem for buyers, because they will not be able to make the same sort of savings they made in the 2008-09 recession. “We’ve gone through a long period of drastic cost cutting, getting operating and purchasing as lean as possible,” Williamson said. “It does remain very difficult to see where gains can come from if we see another dip down, especially if other countries see growth.”
Williamson pointed out that stronger growth in China and Asia generally could see input costs increasing, as demand for commodities is sustained worldwide, such as grain and steel. “[Procurement managers] are going to be playing on a global buying platform. Given that purchasing pricing power is going to be constrained, we may see companies looking at how to streamline their workforces.”