The International Association of Bookkeepers' (IAB) chairman Clive Johnson this week predicted that the current economic downturn will last for up to two years.
Johnson’s comments are broadly in line with many major economic forecasters as well as reflecting what businesses are experiencing at the ground level.
“We hear from insolvency practitioners that the numbers of business failures are going down, but based on what my clients and their books are telling me, that’s not my experience,” said the IAB chairman and principal of KC & Co in Coventry on Monday. “Cash flows are still down and they’re not getting better.”
AccountingWEB.co.uk’s Economic Outlook poll backs up Johnson’s grim analysis with two-thirds of members polled during late November and early December thinking that economic trading conditions in 2011 will remain fairly stagnant without any appreciable movement.
The poll also uncovers a degree of uncertainty in the year ahead with 21% thinking it will worsen considerably and just 13% predicting a significant improvement in 2011 – mirroring the downbeat forecast from the Office of Budget Responsibility on 9 December.
In spite of the static forecast and increasing nervousness in the financial markets the British Retail Consortium’s (BRC) Christmas Trading Snapshot Survey shows that around two-thirds of the retail business expect sales to be the same or better than last Christmas.
The majority of retailers remain confident about festive sales despite recent austerity measures and the impact of severe weather.
Stephen Robertson, BRC director general, said: "It's reassuring to see a majority of retailers believe Christmas sales will be at least as good as last year even if a third say they will be worse. But, considering inflation is now at 3.2%, growth of anything less than that would be a real-terms fall.”
Moving into the New Year there are further warnings of an inflation spike as firms plan to take advantage of the rise in VAT and sales frenzy that follow Christmas. According to KPMG nearly 60% of retailers and consumer goods manufacturers intend to raise prices over and above the 2.5% VAT rate increase.
Just this week the Bank of England’s confidence on inflation was called into question after figures showed prices overshooting the official inflation target level again in November.
In spite of this, the continuing rise in inflation is not expected to last in the long-term and many City forecasters are predicting that inflation will fall once the rise in VAT drops out of the annual inflation figures in January 2012.
The upcoming 20% VAT rise has also intensified the debate surrounding the Channel Islands VAT avoidance over the Christmas period, with many in the industry calling for the government to clamp down on the loophole in its wider simplification of the UK tax system.