If we continue to be entrepreneurs we will be strong

Aug 27 2008 by Bill Gleeson, Liverpool Daily Post

WHAT chance the UK economy will escape recession?

Most economic forecasters now believe the answer to this question is "none".

I’m no economist, but it seems to me to be almost a certain fact that we will suffer a fall in output in the current quarter of the calendar year. How many more quarters of falling output will follow, and how deep the trough might be, are the only questions that remain to be answered.

Bank of England deputy governor Charles Bean was a bit pessimistic earlier this week when he said the current gloom would "drag on".

I still think it is possible that the UK could avoid recession. That’s because the technical definition of recession is two consecutive quarters of falling economic output. It may yet turn out that we get just the one quarter of decline, though that could be just wishful thinking.

My expectation is that the weak conditions will continue into the first part of next year, with a pick-up coming in the second half of 2009.

This would make the recession relatively short- lived.

The reasons for such optimism include the fact that the UK economy has been very robust in the previous 16 years. It has become an efficient, dynamic and much more enterprising place than it previously was.

If the good times are indeed over, it is worth reflecting on just what a golden era it has been for the British economy. The past 16 years have seen Britain enjoy a record run of uninterrupted economic growth. During what has been the most far-reaching period of growth since the start of the industrial revolution, the country has achieved something close to full employment, inflation has been low, incomes have risen and UK per capita output is higher than any other G7 country with the exception of the US.

In some ways, the surprise is that the downturn didn’t come earlier. Remember the Asian crisis, the Millennium bug, the Dotcom bust, September 11 and the start of the Iraq war. Each one of these events could have triggered a downturn. Indeed, every other G7 country, including the US, has experienced falling output while Britain continued to grow. Such growth has funded increased investment in schools and hospitals and even Britain’s gold medal- winning Olympic team.

While both political parties will try to claim the credit for creating the conditions underpinning this prosperity, the biggest single factor is that Britain has become a more enterprising place.

Whatever happens now, we need to hold on to that sense of entrepreneurialism during the months ahead. That way we have a chance of coming out of this stronger.

LAST week it emerged that discount retailer Matalan has imposed a unilateral 2% cut in payments to its suppliers.

The move is yet another sign of how times are difficult and price competition has become even more fierce in the high street market.

Given its market segment though, you might have anticipated that Matalan would be one of the beneficiaries of the economic slowdown as tighter fisted consumers divert their spending to cheaper products. That’s what many of the discount food retailers like Lidl and Aldi say is happening.

Matalan’s cut has angered some of its suppliers, who see it as simply passing on the pain to them. Yet there is also something to be said for the Skelmersdale- based company’s approach.

The company and its suppliers ought to see themselves as on the same side, but as so often in Britain, this does not seem to be the case.

Perhaps it wasn’t so much the fact of the 2% cut that has upset suppliers, as the way in which it has been done. A unilateral cut may well have given them the impression that Matalan isn’t on their side.