Optimistic despite election concerns

Optimistic despite election concerns

As a year of green shoots, global crisis and the Grand Depart comes to a close, what does 2015 have in store for your business? Here experts from across the region make their forecasts for the year ahead

Despite much uncertainty surrounding world economies, there are plenty of reasons to be optimistic here in the UK as we enter 2015, UBS Wealth Management’s Bill O’Neill tells BQ.

While the UK is braced for election season and a potential shift in power in 2015, a number of international crises rumble on at the turn of the year and uncertainties loom large over the global economy.

In November David Cameron warned that the world is on the brink of economic disaster amid what he called a series of “red warning lights”. But Bill O’Neill, head of the UK investment office at UBS Wealth Management, sees a somewhat more positive picture. “We don’t see a real prospect of global recession in the next year and a half,” he says. “In fact there is actually a belief that we might see an acceleration of growth in 2015, particularly in the US, as well as some recovery in the Eurozone. We’re looking at growth in the global economy of around 3.5%.

“Oil prices fell by almost 30% in 2014 and in the UK there’s a downwards movement in mortgage rates. Such trends do not ascribe to the basis for expecting a global recession.”

With around 40% of UK exports going to Europe, the Eurozone’s fortunes are clearly concerning for investors and businesses with footholds on the Continent. And O’Neill says that, for all the current geo-political concerns such as conflict and terrorism in the Middle East, the Russia-Ukraine crisis and the spread of Ebola, uncertainty in the Eurozone remains the biggest risk to the UK economy. “This has been a big year for geo-political risk but interestingly issues like Russia, ISIS and various crises in the South China Sea, have had a limited impact on financial markets.

There might have been a risk of a spike in energy prices due to concerns over supply, but oil prices have fallen, although we expect them to bounce back in the New Year.”

In terms of the Eurozone, O’Neill believes it is unlikely the year ahead will bring a significant worsening of conditions there. “The difference between the financial crisis and now is that we’re not getting the level of banking shocks we saw then. More worries may emerge in Europe, but we’re not seeing them. “The UK is performing better than most of the other G7 economies, with growth of around 3% expected in 2014, 2.5% in 2015 and close to 3% in 2016. “These numbers are enviable around the rest of the world and, as a consequence, Sterling is likely to appreciate further, particularly against the Euro and a number of the other European currencies, which will clearly have a competitive effect on the UK economy.”

The upward movement of the US economy will also aid UK plc in 2015, O’Neill says, while also potentially influencing a rise in interest rates on this side of the pond. “We continue to see recovery in the US coming through. We do think American interest rates will go up in 2015 and that might change the context of interest rates in the UK.”

And what impact might the general election have on the economy? “It casts a level of uncertainty, particularly as it looks as though we may not get a single party government, and perhaps even a three-way party coalition. Beyond the election we could see ongoing uncertainty about taxation, spending priorities and the EU – such as what combination of parties would see a referendum on the EU going forward?

Also, we are still halfway through the austerity programme, and the elected parties will have to commit to a plan. The market will want a clear idea of whether the new government is committed to achieving the objective of fiscal sustainability. The current coalition government has forecast that we will reach that point in 2017/18.”

O’Neill adds that the general election may delay infrastructural spending, which could have a knock-on effect in the private sector. Meanwhile, he cites real estate as a potential bright spot in the economy in 2015, while exports and bond markets will be particularly challenging.

A ‘lucky collision’ of positive factors

It’s a great time for new ventures, says Doug Richard, the founder of School for Startups, which recently expanded into Yorkshire in partnership with Sheffield College

The conditions for starting a business in 2015 will largely be an extension of those we experienced in 2014. Two main factors have made this year and the year to come peculiarly favourable moments in time for new ventures in the UK. It has never been so cheap to start up.

Firstly, with the rise of crowdfunding, equity crowdfunding, alternative financing and the absolute low cost of money (interest rates are at a real low), capital has never been quite so cheap and readily available.

Secondly, the Internet, social media and the continued rise of co-working spaces, makerspaces and fablabs have decreased a startup’s operational costs, making new businesses an easier reality for a larger pool of potential entrepreneurs.

Doug RichardsAs for trends, the UK has recently been voted the friendliest place in Europe to start a business. This is due to a combination of factors. Again, with the increasing trend of people crowdfunding for initial capital, businesses commonly have customers before they have money.

We will continue to see the rise of individual stars of the Internet: vloggers, bloggers
and Youtubers. These people will lead our future trends as the ultimate curators of content.

Finally, additive manufacturing (3D printing) will come into its own. We will see an increasing number of new entrepreneurs building businesses around personal manufacturing.

It has never been so affordable, so accessible, so democratic and so creative a time to start a business as in Britain in 2015. I look forward to the many, great businesses that this lucky collision of factors will bring.

Bottling success

James Cain, managing director of Harrogate Water Brands, is tackling the  logistics of getting his product to market

James CainFor us, 2015 will be about how we can maximise our growth potential. Effective communication and accurate forecasting will play a major role in safeguarding our supply in 2015. We now have the capacity to meet consumer demand, having invested £8m in a state-of-the-art Krones Ergobloc bottling line, which has allowed us to quadruple our business output. It’s important that we leverage this opportunity to drive shelf space for our product, whilst remaining true to our ethos of delivering exceptional quality still and sparkling spring water.

In the category as a whole, it’s my belief that in 2015 manufacturing will face a number of different challenges, in particular logistics. At Harrogate Water Brands we continue to put an emphasis on smart logistics – it’s something that I believe in very strongly and have done so ever since my days at Walmart. It’s a tight arena and there is likely to be a shortage of logistics solutions in 2015, so brands will need to think cleverly about the most efficient way to get their products in front of their customers. I believe the pressure will be on businesses to partner with the right providers now to ensure their products are delivered on time and cost-effectively.

We have confidence but lack skills

Natalie Sykes, regional director for the Institute of Directors in the Yorkshire and the Humber: 2015 will be a year of continued growth and investment by businesses.

Key sectors such as manufacturing, energy and the digital and creative industries have regained confidence, but are still missing one essential raw ingredient – the skilled workers to sustain their future growth.

Yorkshire’s companies remain concerned about a lack of available talent to meet their industry’s demands and the cost of recruitment. As older, skilled employees continue to leave the workforce in greater numbers than those joining at the start of their careers, this challenge will become more acute.

Natalie Sykes IodProgress is being made. Apprenticeship schemes are an excellent way of identifying and attracting talent that can be nurtured. Over 100,000 employers are offering quality apprenticeships in more than 220,000 locations. They encourage and energise young people to develop a successful career in our key industries. There is funding and support available from the government, which makes apprenticeships more affordable for SMEs.

Investing in apprentices can be more cost effective than hiring skilled staff, leading to lower overall training and recruitment costs. They also help businesses to develop specialist expertise rather than general skills, which can be adapted as new technology emerges.

According to the National Apprenticeship Service, 96% of employers that take on an apprentice report benefits to their business. The average apprenticeship completer increases business productivity by £214 per week, with these gains including increased profits, lower prices and better products.

As apprenticeships gain profile, young people are seeing that this is more than just a training scheme – it’s a commitment to a long-term career.

Research is key

Lesley Batchelor, director general of the Institute of Export, outlines the importance of knowing your market

The components of a sound export strategy vary little from year to year, although the financial and legislative costs of implementing them can differ greatly. Yorkshire has a reputation for producing quality goods, but reputation alone will not be enough.

Success will depend on getting to grips with the business culture and truly understanding how to operate in your chosen market. Research is the key to selecting a market – whether it is looking at how much it will cost to get paid, through to making sure that any partner is not going to leave you vulnerable with the bribery act. You need robust intelligence about your chosen market.

Lesley BatchelorOnce you have identified your customers and competitors, use this knowledge to communicate effectively. Determine whether you will sell indirectly via a local business or directly from your business base in Yorkshire. Know your timescales and have a clear pricing model. Educate yourself about the legislative and administrations hurdles you will face. Researching your chosen market is relatively straightforward, more difficult to assess is which market is right for you to begin with.

Forecasts and predictions regarding target markets for 2015 are a much needed resource in what can be an overwhelming array of ‘choice’, but it is important to remember that regardless of the growth forecast for a particular country, you have to determine whether it is the correct fit for your product offering.

Looking ahead, Mongolia and Panama stand out as potentially strong markets for export. In the last decade, Mongolia’s booming economy has seen its gross domestic product (GDP) grow by an average of more than 9%, almost entirely achieved due to the sale of its natural resources to China. The partnership between China and Mongolia looks set to continue, with plans to almost double trade between the two countries to US$10 billion by 2020.

Last year, Panama saw its GDP rise 5.57%, with predictions indicating that it will grow by 6.9% by the end of this year and at the much higher rate of more than 9% in the next couple of years. The country benefits not only from its geographical position, granting easy access to both North America and South America, but also from significant investments being made to its transport infrastructure, which includes an expansion of the Suez Canal, due for completion in 2015, to allow for increased traffic and bigger ships.

There’s a void to be filled

Roger Hutton, senior partner at Leeds law firm Clarion, believes the legal sector faces some exciting challenges

These are exciting times for the legal sector which has been one of the last to allow its market to dictate its behaviours and has been slow to embrace change. That change, however, is now coming.  National firms are on a mission to consolidate as quickly as possible in order to create huge international firms to service institutional clients.

There is a void in the profession with no stand out leaders, unlike the huge brand awareness of the big four accountancy firms. I think we will see mergers happening at an increasing rate and firms jostling to establish the predominant positions of these large legal giants.

Roger HuttonThere has also been a proliferation of businesses funded by third parties and ABSs which have initially resulted in an attack on the consumer market, which has placed pressure on the high street practices. The idea is to create brands which may be attractive to the consumer. This has been coupled with a drive towards the commoditisation of legal services and recruiting non-legal staff to undertake standardised tasks.

Whilst this may appeal to some consumers, a likely consequence is a reduction in the quality of service levels. These trends leave a space for commercially savvy law firms doing business with mid-sized entrepreneurial companies which are looking for added value from their professional advisers.  However, the opportunity has to be taken. Law firms need to run like businesses rather than traditional practices, with fresh thinking about how they approach customers.

There is an opportunity to experiment with funding packages that clients may find more attractive, and an increase in demand for a more commercial approach from legal advisers where clients seek a return on investment. The winners will be those who engage with their clients on the terms those clients wish.

Indeed, the sophisticated demands of these clients are pushing lawyers to become increasingly entrepreneurial themselves and, with the economy continuing to improve, it is an exciting space in which to work.

We must invest in growth

Julie Pickersgill, operations director of Harrogate-based Advanced Digital Dynamics, a global IT distributor, says those embracing new ideas will be best placed to exploit opportunities in 2015

As business confidence continues to increase in what is still a fiercely competitive climate, it’s critical that Yorkshire’s business leaders accelerate their marketing and PR drives and re-establish relationships with former clients and connections. Working ‘on’ as opposed to ‘in’ the business, finding out what their customers value about doing business with them – and adapting to customers’ changing demands are also key priorities. 

Seeking out top talent, investing in their teams and jettisoning the underperformers will also give bosses a competitive edge and boost productivity. They should likewise keep on top of the regulatory frameworks, keep tabs on competitors who won’t be standing still and avoid protecting old ideas, as opposed to coming up with new ones.

Julie PickersgillWider industry trends for 2015 reflect the continuing consolidation between the real and virtual worlds. Computing will permeate every part of our lives, with the merging of data streams and services. Our reliance and interaction via mobile devices – coupled with a need for mobile technology to operate in multiple environments – will be unprecedented.

Companies must invest in infrastructure and equip their teams with the right skills to adapt to the evolving IT changes.

IT developments will see a proliferation of embedded intelligence – ie: sophisticated systems which react to their respective environments – along with advances in targeted analytics in interactive systems, such as virtual assistants and smart advisors.  

The rise of 3D printing will also be an area for business growth. Investment in this industry is substantial and, as the cost of 3D printers fall, this market will advance rapidly. As digital developments expand, the emphasis will be on increased security implications. This poses new challenges, because while the relentless pace of change demands increased protection, the ability to meet the demand is limited. Security protection will struggle to keep up with the speed of the digital evolution, forcing businesses to accept and manage more risk.

Back on track

James Appleton-Metcalfe, managing director of Citivale, the Leeds-based property developer and asset manager, feels the sector has turned a corner

After four challenging and difficult years in the commercial property market in Yorkshire, confidence is returning to all sectors in the market across the county. It is not boom time quite yet, but the days of bust are well and truly behind us. Don’t just take my word for it – recent statistics released by national property consultancies Knight Frank and Lambert Smith Hampton graphically underline the progress that has been made this year, following the dark days of the recession.

Lambert Smith Hampton’s UK Investment Transactions Report revealed that investment in Yorkshire’s commercial property market had reached its highest level since 2010 – up 91% to £354.83 million. Even more tellingly, the county had secured record investment growth in the three months to the end of September – a huge surge on the second quarter and up 18% on the third quarter. Year-to-date commercial property deals in Yorkshire stand at more than £1.01 billion with the retail sector experiencing the largest growth, accounting for 67.5% of total investment at £239.54m.

Meanwhile, the logistics and industrial property market in Yorkshire, right across the county from the North Yorkshire to South Yorkshire and West Yorkshire to the Humber, is gathering momentum, with speculative development making a long-awaited return to the region, according to the latest research from global property consultancy Knight Frank. The return of speculative development will provide a much needed boost to the quality of supply in the region, and I believe other development sites will come forward as this momentum gathers pace.

James AppletonThe office market, especially in Leeds and Sheffield, is also recovering from the difficult recent years. According to Knight Frank’s latest Regional Offices Market Presentation (ROMP) report, Grade A rents are now approaching £26 per sq ft, their highest for five years.

This reflects not just a shortage of quality stock, but also a surge in confidence. It should also lead to a return to serious speculative development and now the Leeds city skyline is welcoming back cranes. The impressive turnover during the past three months reflects an increase in buying opportunities in Yorkshire, as some investors have sought to capitalise on significant price increases over the past 12 months.

With evidence of rental growth returning, investor appetite is likely to focus more readily on well–located, short income stock where income can be enhanced through active asset management. This, in turn, will keep confidence flowing, especially as London investors are increasingly attracted to the strong fundamentals of regional property, especially in Yorkshire.

It would be foolish to be over-confident with the upcoming General Election and a possible interest rate rise on the horizon. But, given the dreadful battering the commercial property market has taken in Yorkshire, and across the UK, since the credit crunch, the revival in confidence in the market this year should be warmly welcomed.