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Media and technology lead the way, but many sectors were left disappointed by the emergency budget.

Financials

According to the latest survey by the Confederation of British Industry (CBI), growth within the UK financial services sector is expected to level off in the next three months.

Despite the sector posting its best performance since the collapse of Northern Rock in September 2007 during the quarter to June, growth in Britain’s financial services industry has recently been slower than hoped for and sentiment in the sector has no doubt been negatively affected by the impact of Europe’s sovereign debt crisis.

Nevertheless, in a recent quizzing of financial services firms by the CBI, in which bosses were asked how their business volumes had held up over the three months to June, some 38 per cent said volumes had risen. At the same time, 29 per cent reported a decline, giving a resulting balance of plus nine per cent, which was the most positive result seen since 2007, albeit still much weaker than sector analysts had originally expected.

In terms of a breakdown, banks were the only sector to see business volumes decline during the quarter, whereas life insurers, finance houses and securities traders enjoyed healthy increases. Elsewhere, volumes for building societies and general insurers were largely flat.

Leisure & gaming

Britain’s video gaming sector has been left severely irked by the coalition government’s failure to announce expected tax breaks in June’s emergency Budget.

Currently, the film industry enjoys a significant 20 per cent tax break, and before the election Labour had suggested extending this to the games industry, which at last count generated annual revenues of £1.73 billion (larger than the film industry) and employs more than 28,000 people. Both the Conservatives and Liberal Democrats had said that the gaming sector would be offered tax breaks, at least before polling began.

In a strongly worded statement, games publishers’ body the Entertainment & Leisure Software Publishers Association said ‘the industry will be rightly puzzled as to how tax breaks can be lauded before an election, only to be seen as “poorly targeted” and scrapped just six weeks later’.

Trade body The Independent Games Developers Association (TIGA) went further still, stating that unless some form of tax relief is introduced, ‘the UK will forfeit millions of pounds in inward investment, jobs will be lost and we will cease to be a leading developer of video games’.

Britain’s gaming sector can ill afford an exodus, since it has faced competition in recent years from a number of countries keen to attract video games companies – France, South Korea and Canada all offer generous subsidies.

Video gaming companies were once popular with investors, but fell out of favour due to their lumpy sales and profit profiles. Today, sizeable British-based developers include Scotland-based Grand Theft Auto developer Rockstar North and Lionhead Studios, creator of the hit game Black & White.

Media

Mark Zuckerberg, the 26-year-old founder of social networking giant Facebook, says the site plans to attract one billion users within the next few years.

The Harvard graduate behind Facebook, which has 500 million users worldwide and is rumoured to have generated revenues of $800 million last year, outlined his plans at the recent Cannes Lions International Advertising Festival. There, the young billionaire identified only four countries where his company is not already the leading social networking site – Russia, China, Korea and Japan.

Facebook has had a controversial time of it lately, having to deal with concerns over the privacy of users following a change in its policy that led to large numbers of users threatening to quit the website. In the end, Facebook amended its privacy policy, but it has also faced criticism from campaign groups such as the American Civil Liberties Union, which recently wrote an open letter highlighting key areas of its privacy policy that need to be altered.

Zuckerberg also recently visited David Cameron during an event organised by Facebook in London, with the two having a chat about digital technology. The coalition leader seems to have made a good impression on the young billionaire, who said Cameron ‘seemed very insightful’. He added, ‘A lot of the stuff we talked about was to do with opening up government data.’ Hopefully, Cameron will think carefully before adopting some of the Facebook founder’s ideas on privacy.

Renewables

Certain green sector watchers were left disappointed by the emergency Budget, which had been expected to outline commitments to develop Britain’s renewable energy sector.

Prior to the election, the Conservatives emphasised the party’s ‘green’ credentials, and there were expectations of clear plans being announced for a ‘green investment bank’, subsidies for the renewable energy sector and financial incentives to make homes more energy efficient, none of which have materialised.

Proposals for the ‘green investment bank’ have been moved forward to the autumn following a spending review, as has the ‘climate change levy’, a proposed charge on companies involved in high-carbon industries.

Industry body the Renewable Energy Association was left irate, with its chief executive, Gaynor Hartnell, arguing that the government, which has pledged to become the ‘greenest government ever’, needs to ‘apply the same firmness of purpose it has shown today [with regard to the Budget] to renewables’.

AIM-quoted companies likely to be disappointed by the Budget include wind farm business Renewable Energy Generation and Oxford clean fuel firm Oxford Catalysts. Having experienced a volatile few years, many followers of
the renewable energy sector may well be wondering whether coalition promises for a greener future were little more than hot air.

Retail

Excitement surrounding the World Cup has helped retailers, with sales of clothing, textiles and footwear all up amid the ‘feel-good mood’.

In its latest missive, the Office for National Statistics (ONS) reported that retail sales volumes for May were up 2.2 per cent on the same month for last year, with textile, clothing and footwear sales up 6.6 per cent and sales at food stores running 1.4 per cent ahead.

The figures would seem to suggest that, despite the challenging economic climate, expectations of cost-cutting measures in the emergency Budget and continually high levels of unemployment, the World Cup has triggered an increase in spending, with consumers keen to find a way to forget their troubles.

Jeremy Cook, chief economist at foreign exchange broker World First, said, ‘World Cup fever has helped out the high street in the past month. However, it is difficult to see how this can be maintained with the spending cuts due in the coming months. Unfortunately, the fortunes of 11 Downing Street will always trump those of the Three Lions.’

However, Mark Bolsom, head of the UK trading desk at Travelex Global Business Payments, interprets the data as part of a general economic recovery, saying, ‘This is a welcome piece of good news and shows the underlying resilience of consumers. Although the World Cup will have played a large part in boosting sales, it is consistent with recent upbeat data and it will reassure the chancellor that the UK economy is strengthening.’

A possible consequence of the figures is that they may heighten fears over a rise in inflation. The OECD recently stated that the UK should raise interest rates to 3.5 per cent before the end of 2011 to combat the inflationary threat.

The latest figures showed CPI inflation at 3.4 per cent, which is in line with the Bank of England’s predictions but is still causing concern among policymakers.

Technology

A tax on broadband usage that was proposed by the previous Labour government has been scrapped in the new coalition government’s emergency Budget.

This tax was to charge 50p a month on every household that used broadband in the UK. However, the coalition government considered that the levy would discourage people from taking up broadband, with chancellor George Osborne stating, ‘I am happy to be able to abolish this new duty before it is even introduced.

‘Instead, we will support private broadband investment, including to rural areas, in part with funding from the digital switchover under-spend within the TV licence fee.’

The outgoing Labour government’s plan was to create a ‘rural broadband fund’ that would be used to spread the technology to rural areas of the UK. But the new coalition has instead decided to leave broadband roll-out to private investment, using money from the under-spend from the fund responsible for the switchover to digital TV, with culture minister Ed Vaizey tasked with ensuring that all homes have a minimum speed of 2Mbps (megabits per second) by 2012.

On AIM, Avanti Communications, the provider of satellite broadband to homes and businesses, is likely to benefit from the coalition government’s emphasis on rural areas being connected through private investment. The company gave a measured response to the scrapping of the tax, saying that it was ‘not likely to be that affected by whether a broadband tax was implemented or whether market forces were left to make it happen’.

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