Interview Transcript
What does today’s CBI forecast tell us?
Our forecast today tells us that 2009 is going to be a pretty bleak year and that 2010 isn’t going to be all that much better. But if you unpick it, what you see is that the first quarter of this year will we hope be the worst by a margin that the economy will start to stabilise over the rest of this year and will probably flatline in the second half of this year, gradually pick up into 2010 and by the final quarter of 2010, with a bit of luck, it will be back to something like a respectable growth rate.
How bad will the recession be and how long will it last?
It looks as though the recession will – give or take – last for about five consecutive quarters and peak to trough it will be a fallen output of nearly five per cent. So that is worse than the early ’90s but not as bad as in the early 1980s we hope but of course there is a lot of uncertainty about.
Are we past the worst of the recession?
I think that in terms of output within any luck we are past the worst. The first quarter was really bleak, actually we think it may be, turn out to be worse than the official statistics are now suggesting. We think that in the first quarter we may have seen a decline of over 2%. I hope very much that we are not going to see anything like that again in the near future but of course unemployment is a lagging indicator. Unemployment continues to rise after the economy has stabilised so we think that unemployment will continue to rise quite sharply through the course of this year. We hope that the total figure will not be quite as starkly bad as we felt when we did our last forecast 3 months ago. But we still think it will be give or take 3 million which is obviously a great concern, especially within that a steep rise in youth unemployment which is very worrying for us all.
How does the UK recession compare to those in other countries?
The UK actually is not coming out of this as badly as some other countries. Which is sort of ironic because in the early days everybody pointed at the UK and said ‘financial services oh dear, oh dear!’ but actually the countries that right now are coming out worst perhaps of all are those with big exposure to international trade, like Japan or Germany. I think that, give or take the UK will come out of this sort of broadly in line with the EU average. And it might come out of it sooner than other members of the European Union, in the sense that we went in relatively early, we’ve got quite flexible labour markets and we’ve got a flexible currency. That gives the chance to rebound from this a bit quicker than the others.
What’s the mood in British businesses like at the moment?
The mood amongst British businesses is lighter than it was three months ago. Three or four months ago it really felt as though the wheels were falling off. The banks had been wobbling over the edge of the precipice. There was a worldwide demand shock of a kind that nobody had experienced in their lifetime. You know demand had fallen 20 or 30 per cent in the space of a couple of months and people were really anxious about what was going to happen next. Now that mood has stabilised somewhat. I like the line that Stuart Rose of Marks & Spencer put recently, ‘Maybe we’re just all fed with being fed up!’ And there are some signs that consumer confidence is a bit better than it was. Business surveys, the forward looking business surveys, are brighter than they were. There is still a lot of anxiety, a lot of uncertainty but there’s a greater feeling of stability than there was.
What do you think will happen with interest rates and inflation?
Well inflation is likely to fall over the rest of the year. Now probably not as much as we all hoped it was going to do because of what’s happening to the oil prices and other commodity prices but the oil prices have sort of doubled since Christmas Eve, roughly, and that will have upward push but there is still a really big gap between the actual output of our economy and the potential output. So there is a huge amount of slack there that can be taken up before bottlenecks start to appear. So we think that inflation is likely to remain subdued for a couple of years. We think that interest rates are, right now, at half a percentage point, they’re sort of freakishly low. That the Bank of England will want, sometime next year, to start tweaking that up a bit, because they will be worried about, they should be worried about inflation over the longer term so they’re going to have to start getting a grip on that. But probably not until 2010.
What did you say in your speech last week?
I made a speech saying it was time for politicians to get a grip on things and I said it because I was feeling a bit grumpy about the way in which politics seemed to be totally preoccupied with what is going on at Westminster and there are some really big issues out there that won’t wait! Like the state of the public finances, which is very serious. Like rising unemployment, like energy security and urgency on the climate change agenda. A whole bunch of big and important financial regulation, lots of debate going on about that. How we’re shaped within manufacturing, the automotive industry, the motor manufacturers, some big decisions, urgently needed one way or another there and I felt that it was time to say let’s focus on these a bit because that’s what will shape our economy and even our society in the longer term. Rather than spending all the time looking at our navels.
What does the UK economy need in order to prosper?
We need the credit markets to return to full health. They’re still damaged, access to credit is not getting any worse but it’s not getting a heck of a lot better and companies are still finding it hard to get the money they need to rebuild their working capital, let alone building new plant and equipment round the place. So the credit markets have to get better and people have to have a greater sense of confidence than they now have that the public finances are going to be got into place. Right now people can see great big deficits as far as the eye can see and they’re saying what’s going to happen? Are they going to cut public spending, is public spending going to be cut all over the place or are taxes going to go up, or both? So that’s the kind of uncertainty that doesn’t actually encourage entrepreneurs to get up in the morning.
Do you have a message for businesses, politicians and the public?
Get on with basically. I think that politicians need to start looking over the parapet a bit and getting on with things. I think that businesses need to also show a lead, and to be clear and confident in where they’re going if they can afford to be. Consumers, well, consumer confidence has picked up a bit. It’s likely, I think, that consumers are going to want to rebuild their savings, which were run down very much over the last years and shift from borrowing quite so much to saving a bit more. And that means that their behaviours will change, they will be more conservative, more cautious in the years ahead and that’s probably going to be a good thing.
