1. Ivan Perkovic Head of Economic Research South East Economy Update April 2011 South East Business Development Advisory Group/Business Link Advisory Group

2. Overview Quarterly South East Business Snapshot Survey GDP growth Prices and inflation Labour market Confidence The Outlook - GVA growth by Local Authority Key challenges ahead

3. Business performance broadly stable in almost half (42%) of businesses in the South East in the three months to February 2011. Over one in three said it had got worse (36%) and one in five said it had improved (22%). Results partially reflect the impact of the bad weather in December. Q1. Would you say that,overall, your business/ organisation’s performance in the past 3 months has improved, remained stable or got worse? Base: All Respondents = 644 (South East England) Compared to results in Autumn 2010, there has been a statistically significant increase (indicated by the blue box) in the proportion of businesses reporting that their performance has got worse (from 28% to 36%). This is now almost twice the level of 19% recorded a year ago. Business performance deteriorates

4. Businesses in Berkshire, have enjoyed the strongest performance overall during the past 3 months, followed by Buckinghamshire, Oxfordshire & West Sussex. Net Balance -14 +2 -2 -5 -16 -17 -22 -39 Mixed performance across the region

5. Surprise fall in GDP in Q4. Excluding the weather effect there was no growth in Q4. Activity bounced back in January and February in the South East. Second-fastest growth in new business in the last ten months in February in the region. Weaker manufacturing activity and retail sales, but strong activity in services in March. A surprise fall in GDP in Q4, activity recovers in early 2011

6. Manufacturers and retailers continued to record much steeper increases in average input prices in the South East. Sharper than expected increase in UK inflation – VAT, transport fares, commodities, duties. Temporary effect as CPI (exc. indirect taxes) and Core Inflation relatively low? The base rate going up – GDP Q1 preliminary estimates in late April, BoE Inflation Report in May. Inflationary pressures continue to build

7. Public sector employment in the South East falls by 12,000 in 2010. Total employment up (+21,000 on Q,+49,000 on the year). Employment in the South East is still some 70,000 lower than at its peak. Gradual increase in unemployment in the region. 282,000 ILO unemployed, up 12,000 on the year. Labour Market – so far so good?

8. Claimant count unemployment well below the 1990’s peak. Unlike in the 1990’s it started falling with the recovery of GDP. Some 31,000 lower than at the end of the 2008/9 recession. Significant disparities across the South East. Falling claimant count unemployment

9. Higher unemployment along the coast, in eastern local authorities and larger towns and cities. Claimant count unemployment falls across the region. Greater falls in several largely coastal local authorities and E. Sussex than elsewhere. Above the average unemployment and below the average decline in unemployment in Kent. Claimant count falls across the region Claimant Count Unemployment rate (%) – Feb 2011 Change in Claimant Count Unemployment Percentage point, Feb 2010 - Feb 2011

10. Increase in redundancy notifications – public sector accounts for 44% (March 2011). Significant cuts across the public sector from April 2011 – leads to the increase in redundancy notifications and unemployment. Greater potential effect along the coast and in (largely) eastern Local Authorities. Redundancy notifications and the potential impact of the public sector cuts Redundancy notifications by sub-region, volume and sector, March 2011 Potential effect of public sector cuts on total employment, by Local Authority (District/Unitary)

11. Expectations of the business climate in the next 3 months are mixed – 45% expect the business climate to remain stable. Compared to Autumn survey there has been an improvement in confidence. Q3. Over the next 3 months, do you expect the business climate in which your business/ organisation operates to improve, remain stable or generally get worse? Compared to results in Winter/ Spring 2010, there has been a significant fall in the proportion of businesses expecting the business climate they operate in to get worse (from 32% to 23%), suggesting that perhaps the bottom of the downturn has been reached in early 2011. Business confidence improves

12. Business expectations regarding domestic orders and the volume of output more positive over the next 3 months. There is also more optimism regarding profit margins and cash flow. Net Balance +9 +2 -2 +15 +6 +12 +3 Business Trends - next 3 months

13. A small recovery in business confidence in March (ICAEW). Dip in confidence (BCC, Markit/CIMPS Manufacturing PMI), but strong service PMI. Steep deterioration in household finances in March (Markit HFI). Nationwide Consumer Confidence Index at its lowest level in the survey’s history in March. A sharp fall in consumer confidence

14. The Outlook for 2011 Slower GDP growth over short term but slightly faster thereafter (OBR). Economy to re-balance – strong contribution to growth from trade and business investment (OBR). South East to outstrip UK and most other regions, but not London and the East (Experian). Significant disparities in GVA growth within South East counties (Experian). county average

15. Key challenges ahead Fiscal tightening and its impact on consumption Weaker demand for exports Lending still constrained Business investment fails to materialise Inflation and tighter monetary policy Housing market re-adjustment / the credit crunch v2.0

16. Thank you SEEDA Research & Economics Email: research@seeda.co.uk www: http://www.seeda.co.uk/what-we-do/economic-intelligence-and-research