Analysis: Fracino’s woes mirror UK pullback

William Schomberg London

When the financial crisis began to spread five years ago, British coffee machine maker Fracino raced to get ahead of it. From the firm’s base in Birmingham, it carved out new markets in the Middle East, Asia and even Italy for its cappuccino and espresso machines, which it proudly stamps with the British flag.

Last year Fracino generated 25 percent of its turnover abroad, up from just 2 percent before the crisis.

That is the kind of transformation the Conservative-led government promised for the UK economy as it took office in 2010, after a near collapse of the huge banking sector and a plunge in house prices.

But in the past few months, things have taken a worrying turn at Fracino. Clients at home and abroad have started to demand its cheaper machines, shunning the more expensive models and slowing the company’s revenue growth.

“They are just buying the machines that will do the job,” managing director Adrian Maxwell said yesterday.

“Until something happens for people to take their foot off the brake and feel a little bit more relaxed about spending again, it’s long going to be a long, hard haul.”

Nearly three years after the government vowed to restore the country to financial health with a round of deep spending cuts, the economy looks stuck in a rut and could already be in its third recession since 2008.

Public debt is set to carry on rising for another three years, a blow to the ruling coalition that is facing parliamentary elections in 2015 and which has made austerity the centrepiece of its economic policy.

The creation of more than 1 million jobs in the past two years has surprised economists. But paltry wage growth for most wage earners has been the price of high employment.

And the ambitious-sounding plans of 2010 to rebalance the economy with a focus on exports as a new driver of growth have so far come to little, hampered by the economic crisis that has hammered Britain’s main trading partners in Europe.

A Reuters poll of economists last month predicted growth of 1.6 percent next year, better than the 1 percent forecast for the euro zone and only a touch slower than Germany’s forecast, but worse than the British government expects.

Some say the steady drip of weak economic data recently means that Britain’s outlook is deteriorating.

Not only did the economy shrink slightly in the last three months of 2012 but investment by businesses fell by 1.2 percent, a potential warning sign of more weakness to come.

Factory activity shrank sharply in February, data showed on Friday, and many banks are too weak to resume significant new lending.

“There are structural factors pulling down on growth and they aren’t going away,” said Philip Rush, a UK economist with Nomura. – Reuters