The UK is walking along a cliff-edge. Falling off is not inevitable. But stepping backwards would be good.
A great deal of politics and business involves never letting that ever-present Denier in the head gain control. Today has been an excellent example of people failing to obey this rule.
One side-effect was that the Chancellor Alistair Darling wriggled very nicely off his hook. I freely admit that our story of earlier about the UK’s accelerating schuss into a pit of unmanageable debt did not catch the mood of the rest of the media. What the story isn’t is wrong. If other commentators are potty enough to accept the word of a finance minister who gets all his forecasts wrong and then sets his own eminently achievable targets, that’s their lookout.
Earlier today, the BBCNews website ran a story headlined ‘Britain’s AAA credit rating safe’. The mind boggles at the mentality of the head above that guillotine-inviting neck. Six months ago, German and French newspapers were leading with stuff opining ‘Eurozone will be strong enough to resist Sovereign member debt’. Just a week ago, those same papers were proclaiming ‘Markets calm after Greek resolution’. Well, they aren’t today.
I have a good friend and hugely talented supplier who has always served me well on the financial front. He says one thing about life above any other: there are people who can see what’s coming down the road, and people who only notice the steamroller when it crushes them. I’m sure he’s right, and there have never been as many steamrollers with factory-fitted silencers as there are at the moment.
Here are three heading right for us – with no driver and no brakes.
1. European debtor States as yet off the media radar. Everyone talks about the PIGS – Portugal, Italy, Greece and Spain. But there are others to the north with far bigger problems. Lithuania is one, Hungary another – and Latvia a third.
Latvia has just blipped onto the screen. The ruling People’s Party, the largest group in a five-party coalition, walked out amid disputes over how to cope with the country’s severe problems yesterday. In short, Government collapse. Unemployment is at 1 in 5 of the population, and the recession there – the economy slumped 18% last year – is the worst of any in Europe.
The Prime Minister said he remained “confident that an emergency IMF bail-out worth £6.7bn will be unaffected by the political instability”, but then he would say that.
2. The Commercial Property chain reaction. We’ve been here before I know, but air-raid warnings benefit from repetition. A huge proportion of UK pension and assurance company portfolios are deep into commercial property investment. The asset bubble created by 0% interest rates seemed to be a golden opportunity, and so fund managers have piled in heavily. The problem is that(a) physical shop retail is on its backside (b) even without a recession, the internet is gaining share at an exponential rate, and (c) if you know any businesses looking for new premises right now, please tip me the wink.
To put some numbers on this, in Europe there is at present a trillion Euros worth of likely-to-default debt where the security is what the sector calls ‘low quality commercial property assets’ – or worthless space.
3. China’s artificially powered export machine. This too has been the subject of previous Slog posts, almost all of which got a zero comment rating. This is understandable, because exchange rates are not the stuff of which riveting beach-novels are made. But the result of China’s new-found power is that they can get away with this…and it is crucially important for a nation like ours whose costs of production are still rising.
It’s a bit disturbing in that context to find a whole page of The Independent devoted to an article by economics writer David Prosser, the gist of which was ‘why don’t we ease up on inflation targets?’
The one brief period during which the UK used QE produced an alarming rise in the inflation rate: alarming, but not surprising. Part of Prosser’s argument was that inflation effectively reduces the debt owed to creditor nations. It does indeed – but it means we have to pay more for manufacturing raw materials. Britain is not, after all, rich in raw materials.
The triple-whammy here is rising labour costs, rising raw material costs, and rising numbers of UK workers doing non-productive jobs.
Three bits of dangerously unguided traffic, and a population somewhat lacking in road-sense. I don’t write this kind of stuff to scare the children: I do it to apply commonsense to New Labour’s insistence that it’ll all be alright in the end. Oh no it won’t.
We must stop giving ourselves excuses, repayment holidays, pressing needs and irrelevant targets. I’m not arguing for us all to have a nervous breakdown; I’m promoting the idea of a radical change in mindset. Great Britain is a business strategy short of a future, and a deficit reduction strategy short of a present.
The voters should ignore anyone who smiles indulgently before saying “There’s really no need for all this doomsaying”. Oh yes there is.