Olympic effect on UK economy may not last long, Sir Mervyn King warns

Hopes of a quick recovery in UK economy is encouraging employers to retain key staff, a labour market survey suggests

Sir Mervyn King, governor of the Bank of England, warned that the impact of the Olympics may not be long-lasting on the economy as he said there were lessons for the banking sector from the “fair play” of the games.

“By spreading happiness and good cheer the Games have made us all feel better. And, who knows, the impact on confidence may give the economy a boost. But ultimately the games cannot alter the underlying economic situation we face,” King said.

Britain’s economy has shrunk for the past three quarters and writing in the Mail on Sunday, the governor said that among the lessons from the games was that the success of the economy in the future depended on actions taken now, including forcing banks to erect a ringfence between their high street operations and their investment banks.

These proposals from the Independent Commission on Banking and competition from new banks, would help, he said. “And, as recent scandals have shown, banks could learn a thing or two about fair play from the Olympic movement,” he said.

Also, he said: “Motivation does not come from financial incentives alone. Again, the financial sector has done us all a disservice in promoting the belief that massive financial compensation is necessary to motivate individuals”.

He made his remarks as a survey of more than 1,000 businesses showed that employers are helping to keep workers off the dole queues by holding onto skilled staff despite low levels of demand.

With Wednesday’s monthly unemployment figures expected to be stable, the latest labour market outlook by the Chartered Institute of Personnel and Development (CIPD) suggests that employers are holding on to spare capacity in the hope that Britain can recover quickly from the recession.

The report’s net employment balance, which measures the difference between the proportion of employers that intend to increase total staffing levels and those that intend to decrease total staffing levels in the third quarter of 2012, has remained positive at +5 (compared to +6 during the previous three months). However, the precarious nature of the market is highlighted by the finding that almost a third (31%) of private sector firms have maintained staff levels higher than is required by their level of output during the past year.

Almost two thirds (62%) of private sector firms would be forced to cut back on labour if output or service delivery does not pick up in the next year. The report, based on a survey of more than 1,000 employers conducted by YouGov, comes before Wednesday’s figures from the Office for National Statistics which are expected to show that the jobless rate will remain at 8.1%.

Gerwyn Davies, labour market adviser at the CIPD, said: “This is a make or break moment for employers – unless growth picks up many will find that they cannot hold on to some workers any longer. “The spare capacity implied by the research suggests that firms are ready to increase their output quickly if demand grows.”

A separate report shows that Britain’s wealthy are losing confidence in the coalition government’s economic policies. More than half (52%) have no confidence in the policies, according to the latest Millionaire Monitor published by investment specialist, Skandia, part of the Old Mutual Group.

Confidence has dropped by a fifth over the last 12 months. In June 2011 well over half those surveyed (56.2%) believed that the government was doing a good job tackling the economic downturn, compared with well under half (43.5%) in June 2012.

The lack of confidence is being fuelled by a worsening of household finances for almost two in five (37.4%) millionaires, with almost three in five (57.2%) rating the UK economic situation as being worse now than 12 months ago.

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