Tough times ahead but we should avoid a recession

Jan 2 2008

Business editor Bill Gleeson looks at what the New Year may have in store for business

THE economic outlook for the UK for the year ahead is uncertain. Fears sparked by the credit crunch have caused HM Treasury and the Bank of England to join a host of City analysts and downgrade their forecasts for growth next year.

Halifax and Nationwide are among the leading mortgage lenders predicting a slower housing market in 2008.

Local pundits reflect the prevailing uncertainty afflicting the national scene.

Peter Stoney, honorary senior fellow at Liverpool University Management School, believes that the crucial issue is how the nation’s economic managers respond in the months ahead.

This is particularly true of the monetary policy.

He said: “Provided the Bank of England continues to cut interest rates quickly early in the New Year by a half per cent more, then the UK economy should avoid recession.

“The continued attainment of the inflation target of 2% will provide a sound money environment and discourage excessive wage increases.

“Further volatility in money and equity markets is inevitable until the global financial system stabilises.

“That means banks and other lenders re-learning that prudence is as essential in lending as in borrowing.

“A consequence of a more risk-averse culture will be a modest downward trend in house prices.”

Locally, Mr Stoney predicts that Merseyside’s economic growth rate should be roughly in line with the UK’s rate of 2%. For Liverpool, prospects are above-average because of European Capital of Culture status during the next 12 months.

“It will lead to strengthening leisure and tourism industries as well as acting as a powerful investment magnet.

“The Grosvenor Liverpool One development will give the city centre a higher profile in the regional retail scene. In addition, the new Arena and Convention Centre near the Albert Dock will give added focus to the city’s heart.

“Provided Peel Holdings’ ambitious and extensive investment plans are allowed to materialise, prospects for Liverpool Port are very rosy. It is especially the Port and associated industries that can help alleviate Liverpool’s high male unemployment as well as its pockets of significant deprivation.”

Liverpool Chamber of Commerce chief executive Jack Stopforth agrees that the UK economy faces big challenges during 2008 but still believes there are possible positives for Merseyside.

He said: “Nationally, the economy will slow down, seriously, for the first time in 15 years with growth likely to fall to around 2%. If it falls below that (say to 1.5%) that would be the worst growth since the recession of 1992.

“The slowdown should not be a surprise. America has been the engine of the global economy, particularly the developed world, ever since Clinton. But the crises in their credit markets and in housing threaten to put a break on US consumerism and may conceivably lead to recession in the States and a significant slowdown in Europe, Japan and the UK.

“An early consequence might be a decline in sterling on the back of poor trade figures – indeed, this has already begun.

“But the emerging economies will continue to do well and in that respect, the rival Indian bidders for Jaguar Land Rover could be good news for Merseyside.

“I would like to think that the Bank of England can hold its nerve on interest rates and keep them at least at today's levels, if not a quarter point lower. It is a difficult balance because there are real inflationary pressures in both food and the energy sectors, and banks are bound to be more selective in lending.

“Public finances are tight and this will result in reduced expenditure and pressures at a local and a national level to tax business.

“I do worry that neither of the two main parties has a serious thing to say about enterprise and wealth generation.

“Both are trying to outdo each other on their social agendas without any appreciation that the UK is losing its competitiveness.

“The Chambers of Commerce will need to be forceful in putting forward the interests of business to Government. It would be really good to see business featuring in the national political debate in 2008 but I fear that politicians see us as a cash cow to be milked.

“Locally we can, for a change, be reasonably optimistic. Our year as European Capital of Culture and the mouth-watering programme behind it will provide the city region with an unbelievable platform for PR and promotion to inward investors.

“For example, the BCC Annual Convention in Liverpool on April 28 will give us all – businesses, media and the public – an opportunity to grill business leaders and political figures first hand. Now that is something we should milk.”