Moving forward from a standstill

So it’s official: the UK economy has slowed more rapidly and more deeply than Government hoped it would.
Between April and June the UK economy didn’t grow at all, according to figures from the Office for National Statistics. It stood still.
I don’t think anyone in business will be the least bit surprised by that. Infact, for many the response will be: ‘Tell me something I didn’t know already’.
Whatever Government may say, the feeling on the ground is that business conditions worsened considerably from around May onwards.
To my mind, that’s when the fall out from the credit crunch finally hit home.
It first surfaced in August last year, and it would probably have been 2-3 months before we finally got a handle on how serious it looked. There was then another 2-3 months of financial and business institutions beginning to take action, another 2-3 months before products and services those institutions were committed to were withdrawn.
At the same time, there has been a slow realisation among consumers that the party was over, and that hit home around April.
So what now? Whether we meet the technical criteria for a recession is almost an irrelevance.
If you follow the patterns of previous economic downturns, then the next few months will see falling business sales and profits, cash flow problems, possibly leading to job losses and, in some cases, business failures.
The first businesses to go will be those associated with the financial, property and retail bubble that blew up from around 2003-04 onwards. They owed their existence to the excess of money that was around at the top of an economic cycle which was always likely to head back down (don’t forget that our economy was already weakening before the credit crunch gave it an almighty wallop).
They are young businesses, they lack experience and they have operated only in benign economic conditions.
Industries with underlying structural problems will find change accelerated (more shops will lose out to supermarkets and the internet, for example).
On the plus side, strong performers in well-established industries who have avoided reckless expansion will weather the storm and come out even stronger.
They key question is how long this will go on for. I haven’t found anybody yet who can answer that with any certainty.
That’s partly because economics is not an exact science, partly because there are global influences at play (how the US economy does will have a significant impact), partly too because confidence – the feel-good factor – has a big influence on whether people spend money.
What influences confidence? A whole host of factors, one of which is whether you think your leaders are doing all they can to tackle the situation.
I’m not sure they are. Governments cannot make your business succeed or your house price rise, but they can look like they’re on top of things. This one doesn’t, and I’ve heard suggestions that the Treasury itself is good at theory but poor at practice because it has lost some of its grey-haired experience.
People working in the housing market have known it was in trouble since very early in the year, but here we are eight months in hearing only rumours that something might happen to Stamp Duty.
In the USA, interest rates cuts, tax rebates and other financial measures were introduced as soon as the economy hit the skids. And here? The Bank of England is sticking rigidly to its job of targeting inflation, the Government has shown no sign of changing it…and the economic downturn continues to gather pace.
We’re told the Prime Minister has been working on a rescue package both for his Government and the economy.
I wouldn’t wait until the next set of economic figures before you reveal it, Gordon. One thing that is certain is that they won’t make for pretty reading.