Business booming for pubs, restaurants and legal firms

Optimism in the service sector at 15-year high after strongest trading since 2007, CBI reports

Pubs, hotels, restaurants, accountants and legal firms have enjoyed their strongest three months of trade since the beginning of the financial crisis, strengthening hopes that the UK economy is heading into a solid recovery.

A quarterly survey of the service sector by the CBI, the business lobby group, found the highest proportion of business and professional service firms reporting a rise in business volumes since November 2007 and the most positive outlook on profits since February 2008.

A total of 31% of the companies surveyed, which include accountants, lawyers and marketing firms, said business volumes rose, against 11% saying they had fallen – giving a positive balance of 20% for the quarter to August, the best reading since the early days of the financial crisis.

Optimism about the future was at a 15-year high, with a balance of 22% of companies saying they planned to hire staff and 39% expecting to expand their business. Among consumer services firms, such as hotels, bars and travel companies, a balance of 15% saw a rise in business volumes and a balance of 28% were optimistic about their prospects as the UK celebrated a warm and sunny summer.

But these companies said increased business was not translating into more jobs. They expected to continue to cut staff and rein in investment over the next quarter after profits unexpectedly fell back at the fastest rate for over a year as hoped-for price rises failed to come through. A balance of 11% said they had cut the number of people they employed and 24% said they would cut more jobs in the coming three months.

Stephen Gifford, the CBI's director of economics, said: "We've seen a further build-up of momentum in the service sector this quarter, with business and professional services firms in particular seeing a turnaround in their fortunes.

"Confidence has risen strongly across the board, and the outlook is positive in the short term. But consumer services firms are a bit more worried about the longer term, and have scaled back their investment and expansion plans."

The picture is well illustrated by the experience of British visitor attractions. The Association of Leading Visitor Attractions, which represents venues from the British Museum to Blackpool Pleasure Beach, said its members had seen a 22% rise in visitor numbers this spring and summer compared with last year thanks to good weather, the legacy of the 2012 Olympics and the relative strength of the euro against the pound, which has encouraged visitors to cross the Channel.

But director Bernard Donoghue said visitor attractions were having to offer deals and keep prices down despite rising food and energy costs. "Visitor attractions know that where they do charge, the proposition has to be really attractive to appeal to a hard-pressed consumer," he said.

The CBI's largely positive survey of 161 businesses follows figures published last week that have boosted hopes the UK is heading into a strengthening recovery. On Friday the Office for National Statistics upgraded its estimate of economic growth in the second quarter of this year to 0.7% from 0.6%, making it the strongest three months since Britain got a temporary boost from the Olympics in 2012.

The figures indicated a broad-based bounceback as the improving economic climate in the eurozone lifts demand for British exports, while an uptick in the housing market and a decent summer had boosted consumer confidence.

Tesco and its market research partner, Dunnhumby, released figures over the weekend suggesting that consumer confidence is at its highest level for at least three years. They found that the proportion of consumers agreeing that the economic situation in the country had improved in the last few months had risen to 21% in July from 10% in April, while the proportion feeling that pressure on their finances was increasing dropped to 33% from 41%.

Last week, the CBI said it expected the economy to grow by 1% this year after releasing positive figures for the manufacturing sector.

Philip Clarke, chief executive of Tesco, suggested that good weather and Britain's sporting success over the summer, when Andy Murray won the Wimbledon tennis championship and England's cricketers secured the Ashes, had helped consumers feel more confident. But he warned: "The underlying picture is complex and it's not yet clear if the recent improvements in consumer confidence are thanks to these short-term factors, or part of a more significant shift."

Stephen Gifford at the CBI said: "Conditions remain tricky as households grapple with the prolonged squeeze on real incomes and business confidence remains vulnerable to any adverse developments in the global economy."

Article Source : http://www.guardian.co.uk

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George Osborne under pressure to speed up Royal Bank of Scotland split

MPs voice concerns that chancellor will row back on plan to break up RBS to avoid disrupting the bank's recovery

An influential group of MPs has stepped up its drive to have Royal Bank of Scotland split up, amid concerns that Whitehall officials could back away from the proposal.

Members of the parliamentary commission on banking standards have demanded that plans go ahead to split the operations of the troubled institution, which is 81% owned by the taxpayer, into a so-called good bank and bad bank, in a bid to speed up its recovery and the sale of the government's stake and to help it increase business lending.

The split, which is designed to take toxic loans off its balance sheet and place them with a state-owned bank, has the backing of former Bank of England governor Mervyn King and the former Tory chancellor Lord Lawson.

The chancellor, George Osborne, has asked for a report by advisers Rothschild and Blackrock Solutions on whether the plan is likely to work, but reports suggest the inquiry has found little evidence that the bank's lending capacity is being constrained by bad debts and it is believed the bank sees the proposed changes as unnecessarily complex.

The commission, chaired by Conservative MP Andrew Tyrie, now fears Whitehall officials and the chancellor himself will sweep the proposals under the carpet to avoid disrupting the bank's recovery.

It has written to the Financial Times insisting on a speedy resolution.

In the letter, the commission writes that it is "important for all the options for [RBS's] future structure to be examined as a matter of urgency". It adds: "The chancellor's review also needs to examine whether, over time, the taxpayer may in fact be better off as a result of a split."

Tyrie said: "It is crucial that Rothschild approach this important work with a good deal of independence of mind."

Aides to the chancellor have insisted that, in his view, there are no presupposed right or wrong answers and that he is open to suggestions on the idea of a split. But some Treasury officials are believed to share the view of the bank's outgoing chief executive Stephen Hester, who is opposed to the plan.
Article Source : http://www.guardian.co.uk
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HS2 high-speed rail project is grand folly, say business leaders

Institute of Directors claims there is no business case for the line linking London with Birmingham, Manchester and Leeds

The Institute of Directors (IoD) has urged ministers to abandon the "grand folly" of the £50bn HS2 high-speed rail project, saying little more than a quarter of its members believe it will prove value for money.

The IoD's head, Simon Walker, said the business case for the line linking London with Birmingham, Manchester and Leeds over the next 20 years "simply is not there".

The call comes amid increasing unease among MPs about the scheme, which the thinktank the Institute of Economic Affairs has warned could see costs spiral to £80bn.

Labour has made it clear that the bill for the line and rolling stock should rise no further, while the other main business organisation, the CBI, said in June that investors and taxpayers needed confidence the business case was watertight and costs would be controlled.

Walker, publishing a survey of more than 1,300 business leaders, argued that the money could be better spent elsewhere. "Station upgrades, inter-city improvements, tunnels, electrification and capacity improvements should all be considered alternatives. It is time for the government to look at a thousand smaller projects instead of falling for one grand folly," he said.

IoD members have growing concerns that the line will benefit London more than the regions for which HS2 supporters claim it offers a lifeline. Even when the costs of the scheme were said to be just over £30bn, at the start of the year, the organisation was warning that businesses needed convincing of its economic value.

Although Labour leaders still support the scheme, former grandees Lord Mandelson and Alistair Darling have said it should be scrapped. Ed Balls, the shadow chancellor, said on Friday that there would be no "blank cheque" from a Labour Treasury.

However, Lord Adonis, the former Labour transport secretary who was architect of the scheme and is now head of a review on economic growth, has said any move by Labour to drop the scheme would be "an act of self-mutilation". He has consistently argued that upgrading existing lines would be hugely expensive and disruptive, providing far less additional capacity than building new lines.

Coalition ministers plan to introduce legislation to clear the way for phase one of HS2, to Birmingham, this year – with construction beginning in 2017 – after the appeal court dismissed arguments from local councils, residents' associations and other objectors along the first part of the line that proper environmental assessments had not been made. However, the protesters still believe a successful appeal to the supreme court could stop HS2 or delay it for years.

According to the government timetable the West Midlands part of the line would be ready in 2026, with the full Y-shaped route to Manchester and Leeds completed by 2032-33.

The survey of IoD members found only 27% felt HS2 represented good value for money and 70% thought it would have no impact on the productivity of their business. The IoD said in a statement that the government assumption that time spent on a train was unproductive for business was "wildly inaccurate" as only 6% of directors said they never worked on a train. By contrast, 48% of members claimed they spent at least half the journey working, 26% worked for between a quarter and half the time, and 21% up to a quarter of the journey.

Walker said: "Some of the specific claims that the government has used to support its economic case for the project have been challenged by our members, who by and large do not feel that their business will benefit."

He concluded that the IoD could not support the government's economic case for HS2 "when so many of our members are doubtful of the benefits" and warned that for all the advantages of infrastructure investment, "the business case for HS2 simply is not there".

A Department for Transport spokeswoman said: "We need to build HS2 to free up valuable space for passengers and freight because without it, our existing rail network will be full by the mid-2020s at a cost to passengers and businesses up and down country.

"The scheme is forecast to generate more than £50bn of benefits for the economy but we know we must maximise every economic benefit HS2 has to offer."

Article Source : http://www.guardian.co.uk

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