Patrick Hosking: On the Money
“Dreadful,” “very disappointing” and “awful, awful numbers” were respectively the reaction of three City economists to yesterday’s growth figures. The annualised fall in UK output is the steepest for 55 years. The recession is now, officially, worse than those of the early 1980s and early 1990s.
But the economic gloom can be overdone. It’s the holidays and time to sit back, order an ice-cream and don the rose-tinted specs. Here then are 20 reasons to be (a bit) cheerful.
1. The June quarter was still a heck of a lot better than the previous three months. All the evidence is that we are still bottoming out, albeit just a bit less abruptly than had previously been thought.
2. They are provisional figures only.
3. They are history. GDP figures are hopelessly backward looking and they do not say much about where the economy is heading.
4. Better to look at the stock market as a barometer of future economic growth expectations. Here the picture is sunnier. The FTSE 100, the index of Britain’s 100 biggest blue chips, rose for the tenth successive trading day yesterday.
5. Policy stimulus. Mervyn King, Governor of the Bank of England, has his foot to the floor, turbo engaged, spoiler attached. Never in three centuries has interest rate policy been so lax. It is having a huge impact and will continue to do so.
6. For all the groans about high loan rates, many borrowers have never had it so good. Millions of householders are on tracker mortgages, many of them paying spectacularly little interest, if any at all.
7. The big downer is rising unemployment and job insecurity, of course. But even here the figures have been a bit less extreme than expected: claimant count unemployment rose by 23,000 last month, less than forecast and far less than the 80,000 a month increases seen at the start of the year.
8. We are not Spain, where unemployment yesterday hit 4.138 million — or 17.9 per cent of the workforce.
9. We are sharing the pain a bit more evenly. Employees at companies such as British Airways and BT are agreeing to a string of measures — from pay cuts to unpaid sabbaticals — that help to reduce the wages bill and so avoid the need for deeper job losses.
10. Real incomes for many continue to rise. Teachers have just got a 2.3 per cent pay rise, health workers 2.2 per cent and librarians, social workers, park workers and other town hall staff are on track for at least 1 per cent. That is higher than at least some cost of living measures.
11. The Chinese loans takeaway. Banks in the People’s Republic are engaged in an extraordinary bout of lending. It may well end in tears, but in the meantime it is keeping Asia’s most important economy galloping along at more than 7 per cent.
12. India and Brazil are doing their bit too.
13. The housing market. House prices have been rising since February. Nothing would boost consumer confidence and banker confidence more than a consensus that property prices have really bottomed out.
14. Foreign investors love us. Despite eye-poppingly poor numbers for the public finances, sterling has actually recovered in recent months and the Debt Management Office is having no trouble finding buyers for gilts. Buyers snapped up £5 billion worth in just one day this week while bidders for £3 billion more had to be turned away.
15. The black economy. The official GDP numbers probably overstate the seriousness of the downturn because business goes underground in a recession. The 25 per cent increase in cocaine use this year (according to the National Crime Survey) may be regrettable but the proceeds from one million users will trickle back into the legitimate economy.
16. Woolies syndrome. The fact that 557 out of 807 former Woolworths stores remain empty seven months after the retailer went bust is seen by the pessimists as evidence of the severity of the downturn. But there is another way of looking at this: 250 have reopened, a sign of confidence from new tenants such as Tesco, Waitrose and Iceland, and also of the dogged spirit of scores of smaller entrepreneurs setting up other businesses in former Woolies sites in the teeth of the economic gale.
17. The self-correcting tendency of capitalism. The horrifying statistic this week that 52 pubs a week are going out of business is not such bad news for surviving landlords. Every closed boozer means less competition and more customers for those still standing. Shrinking capacity has its compensations as investment bankers are already discovering, their margins fattening up nicely.
18. Even the business gloomsters will eventually have to adjust. Stocks of materials and goods all the way along the supply chain have been run down in the past 18 months. Just to meet the meagrest demand, production is going to have to pick up soon.
19. Inflation has replaced deflation as the market bogeyman. Both are evils but inflation is the lesser. The most indebted governments, firms and individuals secretly find it rather an attractive prospect.
20. The non-financial benefits are self-evident. Waiters are friendlier, plumbers available and, even in the rain, it is easy to find a cab. (Patrick Hosking, The Times) http://www.timesonline.co.uk/tol/comment/columnists/article6726877.ece
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