Economist issues profits warning

By Gary Crossley

Profits of businesses heavily dependent on foreign tourists will fall this year, says one of the UK's top economists.

Professor Douglas McWilliams, chief executive of the Centre for Economics and Business Research, warned the Catering Forum that the strength of sterling was putting off foreign tourists.

The strong pound had already affected tourism levels, which would show no increase this year, fall next year and wouldn't recover significantly beyond 1998.

But the outlook is not all gloomy, because domestic disposable incomes should continue to growing strongly into 1998, he added.

"After that, incomes will still grow at about 1.5% to 2% per annum, which is about half to two-thirds of current levels," said Prof McWilliams.

One of the biggest threats to the catering industry's profits would come from the minimum wage, said Prof McWilliams. He claimed that the new head of the Low Pay Commission, Professor George Bain, principal of the London Business School, was slightly left of centre, which would increase the chances of a higher minimum.

"I expect the minimum wage to be set at around £4 an hour," said Prof McWilliams. "A minimum [wage] set at £3.50 would cost the economy only about 50,000 jobs, less than the average monthly falls in unemployment at present.

"But a £4.50 minimum would eventually cost the UK half-a-million jobs and would be especially damaging for businesses like catering."