Diverse economy more resilient in tougher times

May 14 2008 by Bill Gleeson, Liverpool Daily Post

THE impression that the UK economy is teetering on the brink of recession gets stronger with every day that goes by.

Earlier this week, official figures showed monthly factory gate price rises hit a two- decade record, something that will inevitably feed into retail prices. We have also seen slowing retail sales, house price falls, more credit crunch gloom in the banking sector and the oil price shooting up. All of this adds fuel to the mounting pessimism.

And yet, the week before, the Bank of England’s Monetary Policy Committee kept the interest rate on hold, resisting the temptation to cut it for the second month running.

Despite all the doom and gloom, inflation is, as yesterday’s figures reveal, gathering pace. Yet, by the standards of past slowdowns, the current economic circumstances facing the country are relatively benign. Inflation was 3% in April, but it has spent periods of time well into double digits in each of the last three decades.

The crucial piece of data that we need to look at, though, is unemployment. The latest figures are out today.

Many economists think very high rates of unemployment are a thing of the past, and will not come back to haunt us this time round. On the contrary, employment is at record levels. There may be some sectors, such as financial service jobs in the City of London, that are more sensitive to swings in mood, but we have not seen wide- spread lay-offs as yet.

The UK economy is structurally very different from how it used to be in previous decades. For example, we are less reliant on manufacturing for employment, which always seemed to suffer badly whenever a downturn came.

Instead, the economic base of the country is more diverse and more resilient with highly paid knowledge sector workers coping better with harder times.

Another factor is that so much manufacturing is automated these days. Factories may be seeing demand fall, but lower output volumes don’t result in machines registering for job- seekers allowance.

Immigrants, particularly Poles, populated our construction sites for a number of years before the property slowdown. As with machines, laid- off Poles don’t register for jobseekers allowance. Instead, they head back home.

Incapacity benefit accounts for many people who in the past would have been registered unemployed.

Locally, I would anticipate that the opening of Grosvenor in the next fortnight will mean that Merseyside’s, and particularly Liverpool’s employment conditions will be even more resilient than much of the rest of the country, a trend that will be further boosted during the peak tourist season this summer due to Capital of Culture.

Such conflicting circumstances are hard to read, but if current trends turn out to be as bad as things get before economic growth reasserts itself, we will have got away lightly.

WITH every cloud there is a silver lining – and that is certainly true about difficult times on the high street.

A number of retailers, including Knowsley’s Ethel Austin, have gone bust in recent months, reflecting the traumas being experienced on the high street.

Fabric Warehouse, a south of England based home furnishings and fabrics group, went bust recently. Nobody has bought it as a going concern, so instead another Knowsley-based business has taken the opportunity of snapping up the leases on ten stores.

Caldeira, a manu- facturer of cushions, is making its first foray into retail. It’s a brave bit of diversification when everybody else in retail is complaining about declining sales and falling consumer spending.

Fingers crossed.