Election 2015

Election ‘puts food capital investments on hold’

01-Apr-2015 - Last updated on 02-Apr-2015 at 09:04 GMT

Uncertainty in the run up to the election is dampening food business investment, warned a top economist

Related tags Business leaders General election Economics

Uncertainty in the lead up to the general election is causing food firms to put on hold plans for capital investment and freeze their employees pay, even though the economy has picked up, a leading economist has claimed.

“We’re close to the general election and that means a dampening of business decisions around spending, which are now likely to be made after the election,” claimed Ashridge Business School economist Roger Martin-Fagg.

Spending in the food sector for the first quarter of the year was below expectations, Martin-Fagg told a British Frozen Food Federation conference last month (March). Businesses had maintained pre-recession wage levels for their employees, who had not changed jobs over past seven years because of fears about job security, he said.

Stagnant wages

This had altered the structure of the UK’s labour force, he said. “There has been a rise in semi- or unskilled workers and the result is that wages have not risen,” he said. However, productivity and output had grown and would continue to do so, he added.

There was no need for firms to be so cautious, as the UK’s economy was doing well and was set to become even more favourable for manufacturers, Martin-Fagg said. Gross margins for UK businesses in general had increased by 17% and the cash flow of private companies had grown by 9% year-on-year and was set to continue to rise, he added.

What’s more, interest rates were unlikely to increase this year and the price of oil would remain low, he said, all of which would boost consumer spending power.

“I don’t expect the price of oil to rise above $60 (£40) a barrel this year, from the $80–90 (£54–61) it was at a couple of years ago,” he said. “The low price is the key factor in the west’s economic growth, but prices won’t dip below $50 (£33) a barrel.”

Concerns

Martin-Fagg also raised concerns about declining economic activity in China. “Everyone is talking about China, but it’s not doing as well as some say,” he suggested.

Election jitters

“We’re close to the general election and that means a dampening of business decisions around spending, which are now likely to be made after the election.”

Roger Martin-Fagg.

There had been a lull in China’s domestic and industrial energy demand, which he attributed to the country’s switch from making many cheap products to fewer more expensive ones. However, even if China’s economy deteriorated further, Martin-Fagg doubted that it would bring the world’s economy crashing down.

Meanwhile, as electioneering gathered pace this week, food industry bosses were drawn into arguments about which of the main political parties would act as better custodians of the UK economy.

The Conservatives reacted with glee yesterday (April 1), after more than 100 business leaders backed the coalition government’s stewardship of the economy in a letter published by The Telegraph. The business leaders – including Paul Wilkinson, chairman of Thorntons – warned, by implication, that Labour’s economic policy would “threaten jobs and deter investment”.

Earlier this week, Labour published a full-page advert in the Financial Times, quoting six business leaders warning that an in out referendum on EU membership, as promised by the Conservatives, was one of the biggest short-term threats to British business. One of the business leaders quoted, Jonathan Myers, later distanced the firm from any party political affiliation.