Staggering to feet and straight into an uncertain future
BRITAIN’S return from the brink of economic catastrophe will be slow and unsteady on a road full of pitfalls, the HSBC’s chief UK economist Mark Berrisford-Smith told members of the Entrepreneurs’ Forum this month.
Although he said Britain was now in a “recovery story”, he predicted it would take years for the economy to emerge fighting fit from recession. “It’s not over until you are back to where you were when it started, and that could take three to four years,” he said.
All the good work that had been done to create a strong economy between 2005 and 2008 had been wiped out, he told around 200 Forum members and guests in Gateshead.
“My guess is it will be 2012 before the patient is back to something like his old self and ready to go home, and even then he will be told not to go back to a party lifestyle.”
Mr Berrisford-Smith explained how close the country had come to economic collapse. “We were staring financial Armageddon in the face. In the week of crisis in October 2008 economic activity fell off the proverbial cliff. Make no mistake, we did come close to grief,” he said, referring to the 11th-hour deal between Chancellor Alastair Darling and the banks.
“Are we in or out of recession? Compared with where we were a year ago, there’s a vast improvement.”
Recent positive evidence includes figures that show house prices in the past six months have risen on average by 5% and statistics from the British Retail Consortium this week indicate the best Christmas for eight years on the high street.
Mr Berrisford-Smith explained it by mortgages still being low while recession-related job losses had not been as bad as anticipated and job security meant people were willing to spend.
“It may be a false dawn, but a least we are not staring down the barrel of massive losses,” he said.
He said improvement began about six months ago, led by the large economies of China, India, Turkey, Brazil and Indonesia. For Britain, the important news was that America was getting back on its feet, he said.
“It is still the biggest economy and easily the biggest trading relationship for us.
“People bang on endlessly about doing deals with China and exporting to India but £1 in every £7 we trade in and out of this country is with the USA.
“Don’t get carried away with all this ‘emerging markets’ stuff. The fact that America is out of recession is great news for them and for us.”
The core economies of Europe, which account for half of our trade, are coming out recession too but are muddling along, said Mr Berrisford-Smith.
The recession had been deeper in the UK, lasting for six quarters compared with three to our quarters in most countries.
The reason was not over-indebtedness but the zeal of UK firms to cut stock levels of finished goods and raw materials to the point where £17bn worth of stock holdings was wiped off, he said.
He said positive signs would be businesses starting to restock followed by a period of investment in people, premises and infrastructure
Banks lending money would be a crucial aspect of recovery.
“It doesn’t matter in recession. People need cash coming out of recession – that’s when they go bust.”
And Mr Berrisford-Smith warned the entrepreneurs that, in recovery, Britain was heading into the economic unknown.
“The big issues confronting policy- makers now are when do governments start to put the finances back in order? When do you cut spending and how quickly? If you do it too quickly, you run the risk of making things worse; if you start now, you could end up having another recession.