We have spent the past few weeks talking to experts, consultants and practitioners about what 2010 will hold for UK businesses. The results of our work will be the subject of two articles: the first will look at the likely environment that  we will be marketing into next year; the second article will look at specific trends that are likely to influence the successes and failures in our marketing strategies.

Trading

The main influences on the trading environment at the moment are currencies and productivity. The Pound sterling and the US Dollar have devalued significantly in recent quarters. The Yuan has kept parity with the Dollar and is likely to continue to do so. The Dollar is likely to gain in value at a modest pace during the year as the US economy continues its improvement. The Pound will be weighted down the sluggish recovery in the UK economy and also by concerns about the plans t0 get to grips with the budget deficit. The Euro has remained strong against competitor currencies recently. This has split Europe, with southern states suffering while Northern states seem barely affected. Germany has pared backed industrial wages and the productivity gains have meant that it has been barely affected by the strong Euro. How long this tension can remain unresolved is uncertain, but tensions will inevitably grow in the Euro-zone next year. UK exporters will continue to have an advantage over Euro-zone competitors with a weak Pound, but imported raw materials and energy costs will remain expensive.

Politics

A UK election will take place next year, but the outcome is far from certain. Based in the recent mini-budget, many in business fear what will happen to the management of the economy under a labour government. On the other hand, while Tory policy is clear, the team that will implement it is unproven and may take some time to get up to speed.

Set against this background, many people believe that a real practical recovery will not become evident until after the election has been help. Political commentators have suggested that this will be in March, before the National Insurance increases take effect. However this is in the hands of the politicians and we have seen them hesitiate on election dates before. From a business perspective, the sooner the election, the better. When people see that uncertainty out of the way, they will take action and begin to invest again.

Industrial Relations

Following 18 months of wage decreases and short time working, the private sector workforce and their employers have shown how flexibility can be used to avoid unemployment, which currently stands 500,000 short of the consensus forecast. The contrast with the public sector is stark, with recent data from the CIPD showing the public workers expected pay rises of 3%+ next year. This has drawn criticism even from Gordon Brown, who spoke of a culture of excess in public sector pay.

The real elephant in the room is not pay, but pensions. The BA and Royal Mail schemes will come under scrutiny during the year and it is difficult to see how either one can remain open. While this will be unacceptable to the membership, it is pretty inevitable and the decision has probably only been postponed until after the election. This will be the beginning of the end for all public service pensions, but member will not give up their benefits without a fight. Expect a difficult year as tough decisions can not be put on the long finger any longer.

Consumers

Before the election, consumers will remain cautious. Economic data shows the growth has not yet returned, jobs are still threatened and there is a distinct lack of a plan to get us out of this mess. Retailers are more cautious in their purchasing and stocking policies and so there are fewer choices around and far fewer bargains. VAT goes back up in January and so big ticket item purchases will be reduced.

After the election we will have a new dawn. If unemployment remains steady and house prices continue to rise, then confidence will slowly return to consumer markets. Not many families will fancy second summer holiday in the rain and staycations will be off the menu for many. 2010 is a world cup year and that will bring a bonanza for pub and clubs as well as drinks companies. If England perform well, then another element of feelgood will return.

We are not predicting a dramatic turnaround in consumer confidence, but we can see a slow return to business as usual. This will be especially true if we have an early election and a sustained rise in house prices.

Overall Picture

The timing of the general election will be a significant factor in determining the business environment for next year. Both markets and consumer will continue to face an uncertain outlook and most trends will remain unstable or weak. The pound will remain weak, which will help exports. It will also increase costs, which will drive inflation. Industrial action among public sector workers is a strong possibility and this will weigh heavily on the fledgling recover. Given stable employment figures and rising house prices, consumer sentiment should improve from the second quarter.