Unlike the two recessions of the seventies and eighties, this one (let’s not quibble on definitions any more – recession is coming) started right at the top of the money cascade. We have been fascinated in the last two weeks by the banking bail-out, and absorbed by the disclosure of system failures that have been rife within banking, but hitherto invisible.
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But all that has happened so far is that the roof that over-arches a broad and mixed economy has been patched up. Now we are ready for a good-old, overdue, business-and-industry recession.
The signs are all there: the big-ticket purchases are being delayed. Estate agents in Britain are averaging just one sale a week and passing time polishing the windows on the envelopes. UK car sales were 21% down in September and 7.5% down year to date. Spain is the worst in Western Europe at 32% down in September and 22% down year to date – a measure of how bad it might get. Ski holiday bookings are off five per cent year on year, though ‘main’ holidays are holding up for the mo.
Despite all that though, inflation (because of the cost of energy) is up at 5.2% in Britain which is a 16-year record. And despite that, readily-available net savers’ interest in the UK are 4.0-4.5% – less than the rate of inflation. Savers are faced with declining spending power for the first time in more than a decade.
It has been remarkably easy to fix the banks. Gordon Brown simply part-nationalises them, cranks the handle at the Royal Mint, and tops them up with money. It will be harder to deal with the next probable bankruptcies: construction companies will be forced to stop building houses because we have far too many now that they are no longer a proxy for retirement funds.
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By GlobalDataWhat the Japanese discovered during their 15-year depreciation of land prices, was that they needed to dump public money into infrastructure projects.
So Mr Brown may need to take another deep breath and deploy the cash cascade again. Let’s have that new airport in the Thames, and new flood defences, and the intercity high speed rail links, and a vastly impressive and over-spent Olympic park, and the new toll roads with automated guidance for the new generation of intelligent cars; the new BMW 7 Series shows the way and has all the kit on board necessary to manage high-speed toll-roads in platooned, electronic tow hitches without a driver in command.
Fixing Britain’s industrial infrastructure will take a little longer because there are very tricky political implications in owning factories. Can you imagine the newly ennobled UK Business Secretary, Lord Peter Mandelson, nationalising or subsidising Aston Martin, say (which surely has a very nasty couple of years ahead of it)?
Of course he won’t. We don’t even own it. In fact we Brits don’t own any UK car maker. Our owners now in order of UK manufacturing significance are: Japanese (Nissan, Toyota and Honda); Indian (Land Rover and Jaguar) German (BMW’s Mini and Rolls-Royce, and VW’s Bentley); American (GM and Ford); Malaysian (Lotus) and Chinese (MG Rover).
But here is a sudden thought: if the UK economic strategy is maintained just the way it is, the pound will probably go on weakening. In the last year it has fallen 16% against the dollar, 11% against the euro and 9% against the yen. With their costs denominated in sterling, UK car makers will soon have emerging-market cost structures and be able to export profitably for the first time in years. They won’t need any help other than a weedy pound sterling.
And the saddest OEM in Europe will be Peugeot which closed its Coventry factory last year at exactly the wrong moment.
Rob Golding
