Bianca Dexter-Burnell: The two-speed economy

It seems an age ago that the government announced it will be cutting £81bn from its spending by 2014/15.

The effect of cuts will increase pressure on almost every sector, and have a huge impact on consumer confidence and subsequently on their levels of discretionary spend.

Discretionary spend is the lifeblood of licensed trade. Without decent disposable income levels in the UK the leisure industry is historically among the first to feel the pinch as people cut back.

The loss of public sector jobs, especially in regions with high employment in that sector, will directly impact pubs and bars.

A simultaneous cut in non-discretionary expenditure including some travel and conferences and events, will mean less movement around the country for public sector employees, and with it less direct spend on hotels, dining and drinks.

With employment figures faltering, and an increase in VAT to 20 per cent on the horizon, the potential for a decline in personal expenditure across the country becomes all the more apparent. Such a decline will have a marked impact on the licensed trade.

Closures in the market are more than likely, but whether these will be more about dealing with an over-supplied marketplace struggling with capacity issues rather than as a direct result of government cuts will be a point for contention.

What is clear is that there are structural shifts in the sector already under way. Only recently has there been a resurgence of interest from private equity in licensed trade which may promote a greater level of consolidation, and if more properties become unviable the potential for this only increases.

For tenanted properties, a decline in consumer spending will likely see the return of keys to many landlords as those sites currently struggling become unviable in the face of sustained pressures. For some, their model will simply not work over a lengthy period of stagnating trade, particularly as operating costs are forecast to rise, in some instances up to 20 per cent.

However, on the other side of the coin, good operators are not holding back their roll-out plans, although many remain cautious over the outlook for the next 12-18 months. Many have recently confirmed expansion plans and are actively building their portfolios.

There is a clear two-speed economy at play in the UK which directly affects the overall recovery. This is a positive story for London, but for the provinces this is a period of uncertain trading. In London, tourism has been a saving grace, speeding up the economy as increasingly healthy numbers of mainly European travellers exploiting favourable exchange rates are flowing in.

However, shifting trends in their habits see them consigned to the capital where they seek bargain shopping and activities that don't lead them to venture further afield. This means that increasingly the gap between London and elsewhere in the UK is becoming apparent, and if UK discretionary spend were to decrease as a result of the comprehensive spending review, it is likely that London will remain somewhat protected.

If sites fail, there will be potential investment opportunities for others, and indeed businesses will likely find themselves being acquisitive as others disappear. But seek advice and plan well. You need to understand why a site has proved unsuccessful - was it management incompetence, or is there something fundamental about the business that makes it unviable?

Every cloud has a silver lining though, and it is hoped the UK economy will rebalance between public and private sector and confidence again increase, along with consumer spend. This will bring new opportunities so it is important for businesses to take a proactive approach and plan ahead.

By focusing on cash and potential areas for savings operators will be best prepared to meet the challenges of the current fluctuating market and the future economic landscape.

Bianca Dexter-Burnell is head of Licensed Trade, Barclays Corporate​