Growth strategy update – September 2015


In this series of articles we seek to provide a quick reference point on all the up to date news and data that impacts on SME Growth Strategy.  This article follows on from recently published data from the Monetary Policy Committee (MPC) and the Office for National Statistics (ONS).

Growth in the UK economy

The MPC noted that there had been some downside news relating to activity in the Third Quarter. Industrial production had been weaker than expected in July, and the output index of the Markit/CIPS composite PMI for August had fallen by 1.3 points to 55.3, its lowest level since May 2013. The Bank of England has lowered its estimate of Q3 GDP growth to 0.6% from 0.7%. Notwithstanding this, the composite expectations index from the Markit/CIPS surveys had been steady with retail sales indicators remaining solid. In addition, although house price news had been mixed, the RICS survey had suggested a supportive balance of demand versus supply, and mortgage approvals in July had been a little stronger than expected. All of these data, however, carried the caveat that they largely pre-dated the recent financial market turbulence.


The ONS reported that the Consumer Prices Index (CPI) was 0.00% in the year to August 2015, down from 0.1% in the year to July 2015.
Twelve-month CPI inflation rose slightly to 0.1% in July and remains well below the 2% target rate. The main reason for this slight fall back from the previous month was a smaller rise in clothes prices on top of lower energy, food, and other imported goods prices. Weak domestic cost growth, and unit labour costs are also contributory factors to the zero rate of inflation.
Interest rates

Interest rates

At its recent meeting, and for the 78th month in a row, the MPC voted by a majority of 8-1 to keep interest rates at 0.5%. There was a unanimous vote to keep asset purchases (QE) at £375bn.
The mood if anything has moved to a slightly softer view on any interest rate rises with the words ‘slightly’ and ‘mildly’ being the operative words.
With the inflation rate falling back to zero, this is another reason for the bank to further delay increasing interest rates.

The strength of Sterling

Sterling has strengthened over recent weeks after the fall following last month’s MPC minutes
In a recent speech in Cardiff, Kristin Forbes, a member of the Bank’s Monetary Policy Committee (MPC), said that the impact of the pound’s recent appreciation has likely been overstated, and that inflation will rise faster than forecast.
Sterling’s effective exchange rate has appreciated 17% since its recent trough in the spring of 2013. The U.S. dollar has appreciated by about 20% over the same period, while the euro has weakened by 7%.
Ms Forbes made the point that the strength of sterling had been a contributory factor to keeping inflation at or near zero with lower import prices. This of course has had the opposite effect on exporters.

Nb  The pound rose sharply against the dollar and the euro following the unexpected dip in the unemployment rate and increase in wage growth as reported below.


The ONS reported that there were some 31 million people in work, 42,000 more than for February to April 2015 and 413,000 more than for a year earlier.
The employment rate (the proportion of people aged from 16 to 64 who were in work) was 73.5%, little changed compared with February to April 2015 but up from 72.8% for a year earlier.
The unemployment rate was 5.5%, unchanged compared with February to April 2015 but down from 6.2% for a year earlier.
Real wages grew by 2.9% in the three months to July up from 2.8% in the three months to June.


The BDRC-Continental 2015 Q2 report continues recent trends in SME business finance. Success rates for renewed/new loan or overdraft applicants were at very high levels, particularly for overdrafts. This improvement includes smaller businesses and those applying for the first time. These groups have historically found business finance harder to access. The report said that demand for finance remained limited overall but the half of all SMEs now meeting the definition of a Permanent non-borrower (with little apparent appetite for finance now or in the future) may be masking signs of increased appetite for finance amongst remaining SMEs.

Business confidence

The CBI Industrial Trends Survey for July 2015, reported that more manufacturers thought output would rise over the next three months than thought it would fall – the difference being +12% of firms.  This is 4 points lower than the previous month and 11 points lower than July 2014.
The MPC minutes suggested that consumer confidence had risen a little in August from already high levels. Trading Economics suggested that UK Business Confidence incresed to 8 in the third quarter of 2015 from 3 in the second quarter of 2015.



The UK business environment continues to paint a more encouraging picture post financial crisis. However this better news should be weighed against the potential impact on world (and therefore UK) trade of the Chinese economy imploding under the weight of their significant debt burden, an increase in US interest rates and the European refugee crisis. As I write this Jeremy Corbyn has just been elected leader of the Labour party and announced that the Shadow Chancellor will be John McDonnell and the Business Secretary Angela Eagle, none of whom it could be said are natural business supporters.

If you have any comments on this article or would like to discuss any aspect of it please contact me at

John Thompson is Managing Director and founder of Trans Capital Associates

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