Businesses are at high risk, says New Economy report

Greater Manchester's business growth is starting to stall after a robust start to 2011, according to new market research.

In New Economy's latest edition of the Manchester Monitor released on Wednesday, research suggests that the prospect of a prolonged slowdown has markedly increased.

The report suggests business conditions are already worsening in Greater Manchester. The proportion of businesses classified as high risk is now 37.1%, equating to 35,000 businesses, up from 33.8% in March 2010.

Simultaneously, the number of business deals has fallen over the year by a third to just 9 in February 2011.

However, New Economy said there are still some positive signs for business in Greater Manchester with construction orders rising by 1.3% to a value of just over £1bn on the year, outperforming the North West, where the value fell by 19.2% to £597.8m, and national levels, which dropped 0.7% to £178.9m over the year.

Consumer confidence in the city centre also appears high, as figures provided by Manchester's city centre management company CityCo suggested a continued increase in retail turnover and a continued increase in footfall into key areas of the city centre. The research said this is further confirmed by Marketing Manchester's hotel occupancy figures, which have shown an increase on the year.

Within its report, New Economy said Greater Manchester Chamber of Commerce's quarterly economic survey shows that domestic sales and orders remain low, and that employment growth in the next quarter is expected to be limited in both the service and manufacturing sectors. However, exports remain steady for all sectors and, more positively, around two-fifths of employers are still expecting to recruit.

The research said the housing market is still weakening with Greater Manchester seeing a fall in the average house price over the last year and consecutive falls in house prices have now been experienced in each of the last four months.

The report said house prices in Greater Manchester fell 0.2% in February to £109,712, which represented a 1.4% fall on the February 2010 average house price.

The research showed the number of sales has also dipped, which highlighted a continued reluctance to purchase houses at the current market price and indicated a loss of confidence as individuals become concerned about future employment prospects.

Across Greater Manchester, the average house prices were shown to vary from £93,088 in Oldham to £187,315 in Trafford.

New Economy said Greater Manchester's housing market performed more strongly over the month than both national and regional averages.

A positive picture was also reported from the labour market where the apparent worsening of the business environment has yet to feed through. There has been a significant annual fall in jobseeker's allowance claimants of 9.3%, greater than the 7.7% decrease experienced nationally. However, despite increasing by 6.1% since January, the number of vacancies reported by employers to Jobcentre Plus has fallen by 10.9% compared with February 2010. New Economy said this again suggests the business sector may be starting to stutter.

John Holden, deputy director of research at New Economy, said: "With the positive figures that have come out on the performance on the UK's service sector in quarter one of 2011 a technical return to recession – two consecutive quarters of negative economic growth – is unlikely. However, our analysis suggests that the steam may be running out of the recovery and we may be heading to a period where the economy moves between no growth, low growth and possibly negative growth for an extended period."

Baron Frankal, director of economics at New Economy, said: "Clearly if this month's business figures are the start of a trend it is worrying. However, together with other indicators on the labour market and retail spending, the Manchester Monitor overall suggests that Greater Manchester's economy is still in reasonable health. Looking forward, with the unprecedented level of global turbulence, persistently high inflation, and public sector spending cuts starting in earnest this month, it seems that this could be the calm before the storm.

"Elements of the recently released budget will promote increased growth and Greater Manchester needs to grasp these. In particular, the designation of Manchester Airport City as an enterprise zone may encourage the growth of new businesses and create new jobs which will boost the economy for years to come. We will need to stick to a course of action that will help promote growth and prosperity in Greater Manchester."

New Economy works with the ten local authorities of Greater Manchester, as well as other public sector organisations, businesses and universities across Manchester.

Established in 2009, New Economy is one of the six Association of Greater Manchester Authorities commissions.

Last week, the Greater Manchester Combined Authority was launched. AGMA continues to act as the voice of the ten local authorities of Greater Manchester as part of a partnership with GMCA.

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