The CLA’s Rural Economy Index (REI)

Highlighted Figures

• Only five percent have no confidence in the rural economy over the next three to six months,

• This compares to 42 percent having no confidence at all in the general economy,

• 16 percent believe their business would perform well in the short term,

• Half of those surveyed saw business performance in line with expectation over the next six months,

• 97 percent had no confidence in the state of the general economy in the short term,

• Loss of income and cash flow main obstacles to economic regeneration in rural areas,

• Consumer spending also needs to increase,

• Volatility said to be the key to lack of business confidence,

• Measures, such as reducing credit card interest rates and reducing VAT to five percent, are urgently required.

The CLA’s Rural Economy Index 100 (REI)

1.         As part of its assessment of economic conditions in the rural economy, the CLA has undertaken a business survey – called the “CLA REI 100” – to gauge the level of confidence of 100 of the CLA’s business members. This survey was conducted in December 2008. The CLA REI 100 will be conducted each quarter and help build up a picture of how the economy is operating in rural areas.

Types of business

2.         The CLA REI 100 surveyed a representative sample of rural businesses. These ranged from agriculture and traditional estates, rural services (including rural surveyors and land agents), rural tourism operators and food service outlets.

Annual Turnover and employment

3.         The types of businesses surveyed illustrate a mix between micro-businesses and SMEs. This is reflected in the size of turnover and the number of staff employed ranging from £20,000 to £2.5 million and one staff to 15 staff.

Projected business performance

4.   Respondents were asked whether their businesses would, over the next six months:

• perform well with the potential for growth;
• perform according to the business plan;
• perform worse than expected.

5.   The graph below shows that some 16 percent believed that their businesses would perform well with the potential for growth with half (50 percent) feeling that the business will perform according to plan. A minority believed that the business would perform less well than expected although this was very dependent upon the actual business activity. 

Confidence in the rural economy

6.         The perception of confidence is a very good indicator as to the short term outlook for the rural economy. The results make some interesting and somewhat surprising reading.

7.         According to the respondents, 18 percent were quietly confident of the state of the rural economy over the next three to six months. Although 61 percent were not very confident, only five per cent had no confidence at all. This contrasts markedly with the perceptions on the overall economy (see below).

Confidence in the general economy

8.         It is not unexpected that respondents’ confidence in the short term prospects for the general economy are not positive. A significant 97 percent were either not very confident or had no confidence at all as to the state of the general economy over the next three to six months. What is interesting is that there were more respondents who were not very confident compared to no confidence where it would have been expected that this would have been the other way around.

Obstacles to economic stability

Rural

9.         There are a number of factors seen as obstacles to economic stability including:

• lack of cash flow;
• reduction in consumer spending;
• increased government legislation in small businesses;
• low commodity prices.

10.       One interesting comment was the anticipated lack of building materials as a result of the slowdown in the construction industry. This could have a serious impact on those businesses able and willing to expand.

General

11.       Government efforts at stimulating the economy in the short term are not perceived to have worked well. The reduction in VAT from 17.5 percent to 15 percent is regarded as of little benefit, with the reduction not seen as large enough to kick-start consumer spending. Deflation was also highlighted as being a real danger in the future.

Stimulating economic activity

12.       It is clear that rural businesses need Government support through both direct and indirect measures. Actions requested by the rural business sector include:

• reducing credit card interest rates so that these are in line with the Bank of England base rate;
• reducing VAT to five percent in order to stimulate consumer spending;
• stimulating the building of new infrastructure, including telecommunications through greater use of fibre optic cable;
• freeing up credit facilities and making borrowing easier.

Concluding remarks

13.       At this time of economic volatility, the results of the first “CLA REI 100” are surprising. What might have been expected was a more pessimistic view in terms of confidence in the rural economy. This would suggest that the rural economy is more robust than many believed.

14.       A number of factors could be behind this perception:

• any deflationary effect on commodity prices has yet to filter down to primary food producers;
• there is an inherent robustness in rural business, despite the many disadvantages when compared to urban business;
• the eclectic mix of rural businesses could mean that many are able to withstand short term negative economic fluctuations;
• rural businesses recognise the opportunities that exist in a recession, such as the weakness of sterling could lead to more visitors to the UK, thus increasing the potential for rural tourism operators;
• there is a time lag before the economic impact of the recession currently being experienced by urban businesses is felt by the rural economy.

15.       In conclusion, the results of the next CLA REI 100 in April 2009 are likely to indicate whether the rural economy will be able to withstand a medium term recession.