EXCLUSIVE: Good times ahead for UK industry, says economics expert

by Linsey McNeill The UK travel industry should see business bounce back this year as economic growth is expected to accelerate to around 3%, boosting consumer confidence and leading to a rise in spending, according to the head of economics at financial services firm Numerica. Speaking at a seminar on the economy and the implications for the travel sector, Maurice Fitzpatrick said economic growth this year would be “slightly less than the underlying trend, but not bad”. The growth rate slumped to 0.2% in the first quarter of 2003 when the economy was adversely affected by the Iraq war, but it recovered to around 2% by the end of the year. “The reasonable economic growth prospects (for 2004) should be good for personal economic prosperity and therefore good for consumer spending,” said Mr Fitzpatrick. “This is crucial for the travel industry as leisure travel is a discretionary product.” Mike Saul, director of Barclays’ hospitality and leisure team, agreed that consumer confidence was growing, adding that certain sectors of the travel industry were already seeing increased demand. “Some companies, such as some ski operators, are 25% up on last year,” he said. Also, he said the travel industry was in a better shape than previously to take advantage of rising demand. “The industry is working smarter; learning to manage capacity and costs more effectively,” he said. On the downside, the rise of the euro has pushed up the average price of holidays and the hike in National Insurance Contributions last April coupled with an anticipated rise in interest rates to between 4% and 4.5% this year will increase costs for the travel industry and put a brake on consumer spending. But Mr Fitzpatrick said the positive economic factors would outweigh the negatives. “Individuals’ continued willingness to borrow means the recent and forthcoming rise in interest rates might not be too much of a negative,” he said. Also, the rise of the pound against the US dollar has made the States and other destinations with currencies linked to the dollar more affordable, added Mr Saul, although he admitted that the weakening dollar had hit inbound tourism. Tax increases, which will hit consumer spending, are on the horizon, said Mr Fitzpatrick, but probably not until after the next General Election, maybe not even until 2006/07. See today’s related story: WTO “generally optimistic” about 2004 world tourism