It's a rocky road to recovery, warns top economist

THE chief economist of Yorkshire Bank said yesterday that the UK faces a rocky road to recovery, with the end of temporary government schemes and rises in VAT set to hamper economic growth.

Speaking at the Yorkshire Bank Annual Lecture at Leeds Business School, Tom Vosa said he was worried there would be a slowdown after an expected strong fourth quarter in 2009.

However, he predicted that Yorkshire would fare better than other parts of Britain.

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He said: "The Yorkshire economy was the first to enter the recession in the UK at the beginning of 2008. That means that we think it'll be the first to benefit from stronger growth this year."

Sectors such as tourism, specialist manufacturing areas and food processing in the region started to recover towards the end of 2009, helped by a weak exchange rate.

However, industries hit by the banking crisis, including financial services, housing and construction, continue to struggle.

Mr Vosa said:"We are on the road to recovery but it's going to be a very uneven, rocky, and, dare I say it, potholed road that we're going to be going on.

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"We will see growth in the fourth quarter of 2009. Clearly some of that will come from government schemes like the cash for bangers scheme....and the VAT increase in January looks to have brought forward spending into December in terms of large-scale TV items and white goods.

"The question is what happens in January, February and March as not only will those credit card bills come in from Christmas spending, but also VAT will go up.

"Strong growth in the fourth quarter does not mean it will continue into the first quarter of this year and we're worried we will see a slowdown on growth."

Mr Vosa agreed with this week's report by research institute Centre for Cities which warned that a two-tier economy could emer-ge as Leeds continues to prosper but places like Doncaster and Barnsley get left behind.

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"I think the risk is that we do (see a two-tier economy emerging) because successful towns such as Leeds and Sheffield will continue to attract businesses and the labour force, whereas other centres will continue to struggle," he said.

"The challenge for them is to try and leverage off the growth in other regions to become satellite towns and encourage domestic spending and perhaps benefit from relatively cheaper property markets to encourage workers to locate there and then commute (to other areas)."

He added: "To do that, of course, we need to start looking at the motorway network again and at the train infrastructure and how we can move people around the region." Mr Vosa said that although exports, tourism and transport networks remain strong in Yorkshire, unemployment, which is higher than the UK average, remains a concern.

He said he expects interest rates to stay the same until the end of 2010 after reaching an all-time low of 0.5 per cent, despite the fact that inflation jumped at a record rate to 2.9 per cent in December.

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He predicted further tax rises, beyond those already scheduled for 2011 and the new 50p top rate of tax for April, would be necessary in order to reduce the governments 178bn deficit.

He said the VAT rate could increase to 20 per cent and basic rate tax could also rise in addition to cuts of up to 10 per cent per year across government departments.

He said: "It's going to be very painful but remember that the Yorkshire region has a much lower percentage of public sector employment than the UK average so it's much better positioned should we start to see a significant amount of job cuts coming through."

n Listen to Tom Vosa at yorkshirepost.co.uk/podcast

A leading role in the market

Tom Vosa is chief economist for Yorkshire Bank as well as head of market economics in Europe for its parent company National Australia Bank.

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He joined the group as an economist after seven years with the Bank of England where his roles ranged from covering the Japanese economy during the debate on zero interest rate policy to analysing foreign exchange markets.

Mr Vosa's current role includes advising the bank on hedging its own balance sheet, forecasting the outlook for UK growth, inflation and interest rates in conjunction with colleagues as well as interacting with the bank's own traders and clients.