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Support services are 'set for growth'

The support services sector is set to benefit from excellent growth opportunities thanks to government cost cutting, Co-operative Asset Management has predicted.

By Sara Smith | Published Mar 15, 2010 | comments

Whichever government is next voted in must prioritise tackling the country's budget deficit, which will lead to an unprecedented level of outsourcing, the group said.

Paul McGinnis, head of research, said the situation would provide enormous scope for investors.

Mr McGinnis said: "With the government under huge pressure to reduce public-sector debt, outsourcing back-office functions provides an opportunity to make significant savings without having to cut vital front-line public services."

Richard Power, manager of Octopus Investments' UK Smaller Companies fund, agreed the sector looked promising, but warned openings were being overshadowed by nervousness and uncertainty in the UK.

He said: "I believe there are going to be some real winners out there, once a new government puts its plans into action, and the support services sector could well fall into that category. The next government is going to need to cut the deficit, which could result in a lot of outsourcing."

Mr Power said recruitment companies could be well placed to benefit, as firms were likely to shift from permanent to temporary workers to cut costs.

Graham Ashby, head of UK equities at LV= Asset Management, said support services could gain from long-term structural growth at a time when government departments and companies were increasingly focused on cutting costs while improving services.

Meanwhile, Jan Luthman, director of Walker Crips Asset Management, said: "We have no idea what the next government is going to do once they come in, and even if they do outsource, I can't see it saving any money because they are unlikely to fire the corresponding state employees anyway," he said.

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