Bootle: Green shoots still some way off

Roger Bootle, economic adviser to Deloitte, said there was more bad news around the corner for the UK economy, at a dinner hosted by Deloitte’s Birmingham office.

Mr Bootle, who is also managing director of Capital Economics, said any green shoots in evidence at the moment could be giving people false hope.

“I think there are some green shoots coming through but they don’t amount to very much,” he said.

“What has happened is the speed of deterioration has slackened and some signs of an upturn have made people more cheerful but I think there is more bad news around the corner.

“I’m sceptical that next year will show much of an improvement. In fact, I think things could get worse but by the end of the following year we may start to see signs of a recovery.”

Mr Bootle said the West Midlands would not see a recovery until the UK economy as a whole began to strengthen.

“I no longer think there is much difference between the economy of the West Midlands and the economy of the UK. If you look at pretty much any indicator, the West Midlands is slap bang in the middle of the UK’s regional economies.

“So if you are wondering when the West Midlands will recover, the answer is when the rest of the UK recovers.”

The UK’s ability to bounce back could be dependent on the how the banking sector fares in the coming years.

Mr Bootle said that although confidence was returning to the banking sector, lending levels were likely to remain low.

Richard Edwards of Deloitte with Roger Bootle

Richard Edwards (left), Deloitte Midlands practice senior partner, with Roger Bootle

 

“I don’t think it’s surprising that we have seen confidence returning to the banking system in the sense that banks will now lend to each other much more readily and there are some signs of bank lending beginning to pick up a bit but I don’t think we’ll see the crisis disappearing quite that easily,” he said.

“We are likely to see some lingering effects over a number of years as banks continue to be quite reluctant to lend and borrowers may be hesitant about borrowing, so I doubt we will see much of an increase in lending.”

In terms of corporate borrowing, margins on debt facilities have changed considerably pre and post credit crunch.

Mr Bootle said: “UK corporates are now experiencing dramatically escalating margins on new deals as banks will only lend with quite extravagant margins compared to those of recent years.”

Fenton Burgin, a partner in Deloitte’s Debt Advisory business, who also spoke at the dinner, said: “There has been a major lender reappraisal of pricing and fees attached to corporate debt over the last six months as banks have moved to repair their own impaired balance sheets.

“Some of the sectors that have been hardest hit by the economic downturn, such as manufacturing and automotive, are now facing significantly higher borrowing costs.

“For example, in manufacturing and automotive, companies borrowing at around 0.5 per cent over cost of funds pre-credit crunch could be facing margins of in excess of three per cent today.

“It is the pace and scale of this pricing change that has surprised many finance directors; the tidal wave has now hit the beach and many FDs have been caught out saying they’d still be fine in swimming trunks.”

ENDS

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