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'Cheerful economist' sees positive signs in recession

“I started my career in 1968 and this is my fourth recession and seventh banking crisis – I’m living proof that we can survive this”.

That was one message from Anthony Hilton, economist and financial editor of London’s Evening Standard, at the latest AM Executive Breakfast Club meeting.

Hilton, who described himself as “a cheerful economist”, shared an upbeat view that, despite consumer confidence and gloomy press headlines, there are positive signs from this recession compared to past ones:

  • Unemployment is significantly less
  • House prices have eased, but not collapsed
  • Company profits have taken far less of a hit
  • Insolvencies have been fewer than the 1980s collapse.

Hilton’s view was that this recession has been hard to cope with psychologically. Since 1993 the UK had enjoyed growth, so a generation of people in their 30s had never seen recession during their working lives.

When the downturn hit, there was a delay between realising the world had changed and actually doing something about it.

The build-up of a dependency culture, with a reliance on debt rather than saving, has also meant that the whole process of adjustment is more painful than it should be.

One major difference with this recession is that insolvencies have been more common in the personal sector, affecting individuals rather than corporations.

It is harder, and takes longer, for individuals to rebuild their finances, so Hilton warns there will be a long period of depressed retail sales.

Another difference is the impact it has had on the banking sector and the continued tightening of lending. Without credit, it is difficult for the economy to grow. However, the banks are recovering very quickly.

Debt is no problem

The upside, he said, has been the activities of the Bank of England to keep interest rates low and of the Inland Revenue to defer collection of taxes.

Hilton sees no increase in interest rates coming until at least November, until the economy is healthy enough to take it.

The UK’s inflation is being largely caused by imported influences, such as oil prices and the value of the pound, so raising interest rates would not be the solution.

Hilton rubbished the suggestion that the UK’s debt burden is a problem.

It stands at 70% of gross domestic product (GDP), and even if it went up to 100% of GDP it would be no crisis.

Some 5% of GDP goes on servicing the country’s debt, which Hilton pointed out was less than people pay on their mortgages.

Debt is also continually being rolled over, or recycled, by going to the international markets for more money. The issue, he said, is confidence. “If people think the Government has lost the plot they won’t lend it more money.”

Even Greece, where debt reached 250% of GDP in Q2, has an economy functioning perfectly well with debt, he said. There is concern that it may default, but it first defaulted in 400BC, and the Greeks have been in default more than half of the period since 1830.

Hilton also warned against believing the GDP growth official figures, which are frequently unreliable and subject to revision years later.

Between 1975 and 2008 there were 31 negative growth quarters according to the initial figures, but the average up-lift on revision was 0.95%.

“When you talk of growth for the year, good growth is 3%, so when the upgrades every quarter are almost 1%, that turns into a good year.”


Gloomy headlines

Despite being a journalist and economist, Hilton admitted the media hasn’t helped restore public confidence and promote optimism.

He said: “The 24 hour news channels have created the ability to report the news, but there’s no time to think about it anymore. It’s all headlines and bad news, but no analysis.”

Newspapers love to report unemployment figures, but don’t shout about the people in work figures, he said.

The number of people in work has actually risen in the past 18 months by around 400,000. Those are jobs created by the private sector.

Jobs will also become available because of an unusual number of baby-boomers retiring now that they are in their 60s.

It is good news that few people are aware of.

On government cuts, Hilton said there hasn’t been a UK government that has actually cut spending since the Lloyd George’s administration in 1922.

Even Thatcher merely slowed down the growth in government spending, and didn’t actually cut it.

The current government had promised to tackle debt in the election, so Chancellor George Osborne has had to appear tough “to keep the banks happy”, but even now isn’t really cutting spending.

He may slow it down for a couple of years, but to actually cut it is very difficult, said Hilton.

Whitehall is now talking about spreading out the reductions to make it easier on the economy.

The feedback that Hilton has gathered from company chiefs is that trading is fine now, but they are worried about the future - the visibility of what’s coming is not clear.

“Looking at what we’re doing now, it’s okay, but there is an awful lot of fear or uncertainty out there.”

It’s that fear which impacts on retail, particularly for big ticket items such as cars. Consumers with a comfortable standard of living and confident of a pay rise next year will be in the market for a new car, but lack of confidence will stop many.

“It’s the cliché of there’s nothing to fear, but fear itself,” he added.

Spreading positivity

“My one message to government is to start talking more positively. They have talked about tightening the belts, but business leaders now want an end to that. People want to spend, and companies want to invest.”

National economic growth figures are misleading. Headlines of 1% or 2% growth hide the facts that some parts of industry are growing at 5%. It’s a case of spreading these positive messages, said Hilton.

“It is often not appreciated at the time in the aftermath of a downturn how well things are going. In the 1990s politicians were ridiculed for seeing ‘green shoots’, but with hindsight they were right.”

Times are tough at present but dealers should be optimistic of the recovery ahead. Looking back at the 1980s or 1990s recessions, they led to six years of above-average economic growth, of 3.5% to 3.6%.

“I think the economy will do better this year, and next year will be fine with the Olympics and people realising that the world has not ended so they can go back to living normally.”

Premium car brands are already on the up because affluent people show no signs of curbing their spending.

The outlook for volume brands is not so hopeful, largely due to the after-effects of scrappage and that buyers can put off their change thanks to the quality and durability of modern cars.

Hilton concluded his talk with a reference to Darwinism - that his phrase “survival of the fittest” preached not of the survival of the strongest, but of the most adaptable.

“It may take an awfully long time to get back to where we were. You have to learn to live with it as the new norm.”

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