The latest economic forecast

Every day it seems there is a new story about the credit crunch and its latest victims in the press. Many VCOs already operate in some of the most challenging economic circumstances and with some of the most disadvantaged communities. However, the majority of the VCS has experienced a period of growth over the last decade so I think it’s fair to say that everyone is starting to get a little concerned or at least wondering what the consequences of a slowdown or even a recession might be for their organisation. The latest quarterly ITEM Club Forecast from Ernst and Young is not optimistic about the future of the UK economy but is not predicting these tough times to last for long. Some of the main points from the Forecast are:

  • The rises in food and energy prices are compounding the effects of the credit crunch so the next 18 months will be tough.
  • Food and energy costs are set to push CPI inflation above 4% which will delay the prospect of further interest rate cuts. Oil prices are almost 30% up on the beginning of 2008.
  • Activity, investment and profits are predicted to fall back as world demand is weakening and company profits are being squeezed by the commodity price increases.
  • Unemployment will top 2 million and consumer spending will plateau.
  • Growth is now predicted to rise just 1% compared to the last quarter’s predictions of 1.5%, which would be the weakest outcome since the early 1990’s and bring the UK economy on the verge of a recession.
  • The mortgage market has moved from feast to famine (see housing market)
  • The Bank of England cannot cut interest rates while the risk of wage-price spiral remains.But if pay increases are constrained, many parts of the economy should recover in 2010.
  • However, the Forecast assumes that wage and domestic inflation will remain restrained. Unless there are further hikes in commodity prices, CPI inflation should fall back into line with target. Core inflation is only at 1.6%.
  • ITEM expects base interest rates to fall to 4% by the end of next year, helping to cushion the level of demand in the economy and set the scene for recovery in 2010.

This article from the Guardian highlights some of the ways in which the public are changing their lifestyle habits. Discretionary income, which charitable giving is often classified as, is often one of the first things to go. However, the rise of regular, planned giving means it has become a more significant income stream than in previous years. (See planned individual giving)

I have just finished writing a chapter on the changing UK economy and the impact this will have on the VCS for this year’s Voluntary Sector Strategic Analysis. Look out for it at the end of September!

 

Strategic responses to the economic slowdown for the VCS

We have also just run a seminar on the impact of an economic slowdown on the VCS, where we discussed the opportunities and risks the changing economic environment might present for the VCS as well as some practical actions for how organisations can prepare for the current uncertainty. We were lucky to have two expert presenters there, one who gave an overview of the current economic situation and the other who explored the implications of this for the VCS. Read a summary of the seminar and add your own thoughts on how the slowdown will affect the VCS.

Last updated at 11:26 Thu 13/Jan/11.
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