TWRI Policy and Research

Eurozone Economy

Alert: the Eurozone crisis has significantly deepened since the start of July. A Eurozone emergency summit is planned for July 21st, and major action seems required (BBC, Gavin Hewitt), despite deep disagreements especially between the EU/IMF and the ECB.

a) It leapt to Italy, with its bond yields rising by ½ percentage point in a week, to over 5% (a nine-year high, where 7% is regarded as unsustainable). This is the first serious spread of ‘contagion’ [beyond the peripheral three countries]. Italy’s three-year austerity package is being pushed through parliament by the weekend.

b) The terms of the €115bn second loan package for Greece have still not been agreed, particularly whether private bondholders will take part - and if so how.

The IMF stated it would be ‘appropriate’ for private bondholders to share in any ‘restructuring’ [partial default]. Eurozone finance ministers have moved in this direction (FT.com 13/7). The ECB, however, warned European leaders to avoid even a selective default on Greek debt [not least because it can be expected to raise borrowing costs for indebted states]. Private bondholders might contribute to the €115bn rescue, either by “voluntarily” buying new Greek bonds, when their current holdings come due, or swapping large portions of their holdings for new, longer-maturing bonds.  Debt rating agencies, however, indicated that even the voluntary roll-over will lead them to declare a ‘selective default’.  (FT 9/7) [Govts may have to provide more public loans to Greece, or buy-back some Greek bonds or accept a partial default. If Greece defaults, the ECB cannot lend more to its banks, the Greek banks are likely to collapse and require re-capitalising. A major banking crisis is possible. Greece, reportedly, however, now has money until September -Ed.]

Stress tests on 90 European banks are due for release late on July 15^th.  Bankers and analysts believe that up to a dozen banks may fail the tests, most in Spain, Germany and Greece.  (FT 8/7)

The ECB, nevertheless, raised interest rates to 1.5%, up 0.5pp  (FT 8/7).

Moody’s downgraded Portugal’s sovereign debt to junk status.  (FT 7/7)

Local Economy

Electric vehicle set-backs:
[The Dept for Transport announced the cancellation of the nationwide roll-out of charging points on its website on 30^th June (FT 2/7). Oddly] Future Transport Systems, (based in Newcastle), formed an alliance for the nationwide roll-out of an electric vehicle charging infrastructure with a major French firm, VINCI Energies.  The joint venture, SWITCH EV, will be co-headquartered at FTS’ offices in Newcastle and VINCI’s base in Coventry  (J 4/7).

Tanfield is now concentrating wholly on manufacturing cherry picker equipment, for the construction sector [i.e. no longer making electric vehicles.] The Washington-based manufacturer’s order books grew by 170% to £20.9m at the end of June from £7.7m in December.  Turnover [for the six months] rose by almost a quarter, to £24.4m.  (J 5/7)

Four Seasons, the landlord and care home operator, will take back 45 care homes it had leased to Southern Cross and run them itself.  The homes include Stapleton House in Jarrow, South Tyneside, and Durban House in Blyth, Northumberland.  It said none of the homes would be closed, despite Southern Cross describing a ‘significant’ number of them as commercially unviable (J 5/7).

Nexus has held back more than £0.6m from Metro’s German operators, DB Regio Tyne & Wear, following missed targets.  In total, £37.8m was paid out.  A large section of the failings relate to the conditions of stations and trains.  (J 4/7)

Paragon, the buy-to-let mortgage lender, has emerged as a surprise contender to buy Northern Rock.  (J 4/7)

NE Economy

Recruitment by NE companies is rising, as they step up exports to compensate for the sluggish UK market – NECC business barometer.  The optimistic picture of the region’s economy echoes Govt. figures showing the biggest rise in UK factory output for a year.  More firms in the region are increasing the size of their workforce as business grows.  The survey found the level of employment at the highest for three years.  (J8/7)
Also, apprenticeship starts in the NE rose 73% to 24,190 between August 2010 and April 2011 from 13,970 a year earlier. This is the biggest increase outside London (J 6/7).

The Energy Technologies Institute (ETI) will invest £25m in a new turbine test rig at Blyth’s National Renewable Energy Centre (Narec). The indoor rig should be available for commercial testing from June 2013.  (J 8/7)

Narec Capital, formed to help the NE become an international centre for renewables, is looking to raise £300m of funding to fuel the growth of green industry.  It originally intended to secure around £200m from a combination of bank debt, European grants and private investment, but has raised this to £300m over the next 6-9 mths.  (J 4/7)

Room occupancy levels, year-on-year, rose 3.1% with a raft of public holidays boosting visitor numbers.  Revenue per available room (RevPAR) at hotels in the NE rose by 6.4% to £53.95 from £50.68 during the same period in 2010.  During May profitability levels at hotels in the NE grew by 1.6% to £33.71 per available room – TRI Hospitality Consulting.  (J 6/7)

The board of the North East Local Enterprise Partnership (LEP) has been joined by nine business leaders. They join seven council leaders and two representatives of higher education (J 2/7).

Retail closures; the NE is among the areas seeing the [numerically] fewest – PwC.  Between January and the end of May this year there were 58 closures by multiple retailers across the NE, the fewest behind Wales (45 closures during the period).  Newcastle was the worst hit area in the NE during 2010 and 2011, with 64 closures.  (J 9/7)

Job Gains

Sky TV is opening a new call centre in Newcastle, creating 400 jobs.  The customer service centre is due to open at Wellbar Central in Gallowgate, beside St James’ Park, in October this year.  It will employ 800 people, securing the jobs of 400 outsourced staff who currently work for Sky in the region.  (J 6/7)

Potential Job Gains North East

AkzoNobel plans to build a £100m high-tech plant employing around 140 people in the NE.  AkzoNobel makes Dulux paint and Polycell filler. It is closing its existing [Hammerite] plant at Prudhoe in Northumberland (89 staff), plus the manufacturing part of its facility in Slough, Berkshire (131 staff), once the new NE factory is up and running, expected to be in 2014.  The new plant, to be located within 25-miles of Prudhoe, would treble company’s manufacturing capability in the NE (J 7/7).

Up to 800 jobs could be created by a multi-million pound development at Manor Walks shopping complex in Cramlington, Northumberland.  Hammerson, the developers, estimate about 400 jobs will be created in a multiplex cinema, retail units and restaurants. A further 400 could be created during construction stages (J9/7).

Job Losses

Whelan Construction went into administration. The Newcastle-based building firm has laid off 49 of its 53 staff, after a fall in new orders. It was founded in 1972 (J 7/7)

Space Group, the Newcastle architects’ practice, has cut 30 jobs from its 170 workforce.  It is diversifying and looking for work outside the region. (J 6/7)

National Economy

Recruitment growth slowed in June – Recruitment and Employment Confederation and KPMG. Permanent recruitment rose at its slowest rate since August 2009. Recruitment of temporary workers was at an 8-month low (FT 6/7)

People in financial distress rose to the highest ever level recorded - insolvency trade body R3’s Personal Debt Snapshot.  8m people are due to go into their overdraft in July, with 2m believing they will go into an unauthorised overdraft position.  6m people are currently behind with some of their bills and payments, a rise of 2m [extraordinarily] over the last quarter (J 9/7).

Profitability of both the services and manufacturing sectors fell in Q1 2011 - ONS.  The net rate of return in manufacturing fell to 6.1% in the quarter, its lowest rate for a year.  Profitability in services fell to 14.9%, slowing from 15.2% in Q4 2010 (J 7/7).

Shop price inflation rose to its highest rate for more than 2½ yrs, up 2.9% compared with a year ago. This was due to another surge in food prices in June, up by 5.7% - BRC.  Last month’s shop price rise was the fastest in the overall index since October 2008.  BRC said shop inflation is being driven by surging world commodity prices, the effect of the weak pound and higher VAT (J 6/7).

Service sector growth slowed to 0.5% in Q2, from 0.8% in Q1– Markit/CIPS. The sector grew for the sixth month in a row in June, although business confidence slumped to its lowest for more than half a year.  Activity rose to 53.9 in June, marginally up on the 53.8 in May but still below its long-term average.  New business rose in the month, but the rate of increase slowed to its lowest level since February. Optimism levels were at their worst since October (J 6/7).

Financial services’ business volumes slowed in Q2 – CBI and PwC. But employment in finance grew at its fastest pace since the financial crisis began in 2007 (FT 4/7).

While many retail chains are in retreat, niche outlets are still opening high street stores – FT research. (FT 4/7)

Planned store openings (in next 12mths)	High street store closures (closed / earmarked for closure)
Greggs the Baker	80	Thorntons	180
B&M Bargains	50	Jane Norman	90
Store 21	40	Game Group	90
Original Factory Shop	35	Officers Club	56
BrightHouse	30	Oddbins	48
H&M	30	HMV	40
Albemarle & Bond*	28	Habitat	30
99p Stores**	460	Arcadia Group***	500
Poundstretcher**	175	Dixons***	150
Poundland**	150	Mothercare***	121

* Pawnbroker                                                          

*** Planned closures over next 2-3 years
** Targeted openings in next 3-5 years

Construction industry grew again in June, but confidence was at its lowest level for six months – Markit/CIPS PMI.  Construction activity slowed slightly to 53.6 in June from 54.0 in May. (J 5/7)

Construction firms’ profitability dropped by over a third to 5% in 2010 (from 7.7% in 2009). This is its lowest level since 2000, as pricing is under pressure – Constructing Excellence and research company Glenigan, for the DBIS and ONS.  (J 8/7)

Late payments have been made to almost ¾ of small firms in the last year -FSB.  Most of the late payments (77%) were from the private sector, although 18% said they were still waiting for public sector payments.  (J 5/7)

Development

Four hotels in Newcastle and Gateshead are near completion, with plans for eight more in the pipeline.  A Jury’s Inn will open on Baltic Quays, Gateshead, in August.  This will be followed by the Sandman Signature,  a 170-bed, four-star hotel at Gallowgate, the 98-bed, three-star Sleeperz, on Westgate Road, and the Ramada Encore, a 202-bed, three-star hotel on Gateshead Quays.  (J 6/7)

The West End of Newcastle will be transformed in a £256m plan for 1,800 homes in Scotswood.  A public private partnership between three builders (Barrett homes, Yuill Homes and Keepmoat Homes) and Newcastle City Council has formed the New Tyne West Development Company (NTWDC).  It will build a range of apartments and houses for mortgage and rent with prices starting at around £110,000. (J 6/7)

At Newcastle’s Science Central, Newcastle Council and Newcastle University have each paid £1.5m to buy out regional development agency One NE. The Govt. had refused to let One NE carry out any more work on the project.  Science Central is set to see a major new building constructed to house new green energy firms on land next to St James’ Park (J 5&6/7)