SIR PHILIP GREEN, the billionaire retailer behind BHS and Top-shop, has no
doubts about how the Bank of England should inoculate the British economy
against the disease laying waste to financial institutions.
Green is demanding interest-rate cuts to boost consumer confidence and stave
off recession, saying the Bank of England’s fears of fuelling inflation are
overdone.
“An early interest-rate cut of half to three-quarters of a percentage point
would send the right signal and give the right sentiment to both business
and consumers,” he said.
“There is too much paranoia about inflation. The Bank of England should
respond - and respond immediately.
“We need to let people feel confident that this economy is being independently
managed.
“There is an opportunity to give people some confidence. We shouldn’t drive
people into a place where they don’t have any disposable income to spend.
“We don’t want to wait for there to be a disaster – why do we need to get into
a mess to respond?”
Green’s insistence on the need to give the economy a shot in the arm reflects
business people’s nervousness about the likely fall-out from the banking
crisis and whether it will move, as American commentators put it, “from Wall
Street to Main Street”.
While many businesses in Britain have not yet been directly affected by the
financial-services meltdown, there is a general uneasiness about the coming
year – particularly in southeast England, where the London economy relies
heavily on the turbocharging effect of City employment and bonuses.
Some senior bankers are predicting severe job losses, with one last week
forecasting that 20% of City workers could lose their jobs.
“There are whole teams of people, particularly on the fixed-income side of the
business, who are just sitting there doing nothing because there is no
credit for them to do anything with,” he said. “That must lead to job losses
eventually.”
Green’s fellow retailers fear the worst. “There is no question things are
going to get very tough and we are in for a very bumpy ride in the economy,”
said Gerald Ratner, the jewellery entrepreneur. He is planning to slash
prices by a third next month in an attempt to drum up business.
The fears of a City-led slump for retailers were given some substance last
week, when the Chelsea department store Peter Jones, a landmark west London
store and a favourite with bankers and hedge-fund managers, reported a sharp
fall in sales.
The store, which is part of the John Lewis empire, said sales were down 19%,
making it the 16th consecutive week of falls.
Other businesses are hoping they might actually be able to benefit from a
downturn.
Steve Wiener, chief executive of Cineworld, Britain’s second-largest operator
of multiplex cinemas, which reported upbeat results last week, said he
expected the business to fare well despite a downturn. “Going to the movies
is still the cheapest form of entertainment out there. It’s pure escapism,”
said Wiener.
Some parts of the economy are proving resilient. Britain’s manufacturers, for
so long the Cinderella sector, are not revelling in the woes of the City but
they are making the most of things. Many firms say they are enjoying good
growth and see the turbulence on the credit markets as only a distant threat.
“We have a very different philosophy to the financial markets,” said Peter
Roberts, managing director of the Derbyshire-based Signal House Group, which
manufacturers and installs railway signalling equipment and electronics.
“Their wins are short-term wins. We have to play a long game, and UK
manufacturing is fighting back. We learnt some important lessons in the past
about how to grow in a sustainable way. Manufacturing is not a bad place to
be. People can have a secure future in this industry.”
His comments chime with recent findings from the Engineering Employers’
Federation, the industry body, which show manufacturing holding up even
though there is a risk of slower growth in future.
Firms selling direct to consumers are expecting to suffer, despite the fact
that the official measure of retail sales showed a 1% jump last month, but
that is balanced by exporters doing unexpectedly well.
The pound’s fall against the euro over the past six months has given exports a
fillip and they are also being boosted by buoyant markets in the Middle East
and Asia. In these countries domestic demand is strong and the boom in
infrastructure work is providing rich pickings for British firms.
Even many businesses relying on the home market are upbeat. “As far as we are
concerned it is business as usual,” said Brian Piggott, general manager of
Anglesey-based Marco Cable Management. His firm supplies cable-management
systems for offices and factories.
“During the day I sit here and we’re doing well. Then I go home and watch the
news and you feel as though you should be jumping out of a window. We’re up
on last year and we’re up on the year before and we’re proud of that,” he
said.
“Maybe there is something on the horizon, but we are certainly not changing
our plans for this year.”
The CBI’s monthly industrial trends survey, released last week, backed up
Piggott’s optimism. The balance of manufacturers reporting order books above
normal rose to 7%, up from 3% last month.
The balance of firms reporting export order books above normal equalled its
best reading since August 1995.
“Manufacturing is not only holding up as the wider economy slows but growing
on the back of strong exports,” said Ian McCafferty, the CBI’s chief
economic adviser.
“With the prospects for the domestic market uncertain, it is important that
firms can continue to attract overseas business. A competitive pound will
help enormously.”
It is not just Britain’s manufacturers who are looking with puzzlement on the
woes of the banks and financial-services firms. Business services –
encompassing accounting, consulting, advertising, market research and a wide
range of other activities – grew by more than 7% last year.
The evidence so far this year is that while growth in the sector is set to
moderate, it remains healthy. The monthly purchasing managers’ index for the
services sector, which is dominated by business services, has been rising.
“Business-to-business activity is still pressing on,” said Doug McWilliams,
head of the Centre for Economics and Business Research. “It could be that
this will be in the second wave of sectors to be hit by the credit crisis,
but that is not happening yet.
“Business went into this downturn in an extremely strong balance-sheet
position, having benefited strongly from costs coming down. So far there’s
not much evidence of any weakening in business services.”
For the sectors that are slowing down, there are numerous reasons for their
woes beyond the credit crisis. High energy prices and rising raw-material
costs have pinned back some manufacturers, while for other businesses there
are more traditional problems. Many clothing retailers are gloomy about the
weather.
BHS’s Green said: “If we talk about clothing – we’ve got winter weather and
it’s summer in the shops. They are predicting snow at Easter. It’s not
helpful – I’m good but I’m not that good. I can’t sell ice to the Eskimos.
“April last year was exceptionally strong with very warm weather. Today, with
consumers already wary, a seasonal change of weather is essential for people
to want to be in the mood to go shopping.”
The extreme nervousness of stock markets means that companies are being
punished for any news that is not good, even if they are saying sales are
unchanged. Shares in Easyjet, the low-cost airline, slumped again last week
after it warned that profits might be affected if oil prices remained high.
Yet finance director Jeff Carr told analysts that sales were still strong.
“Obviously we are conscious that the consumer environment is a little
unstable, but as far as our current booking patterns are concerned we
continue to see a fairly positive outlook for Easter and beyond that into
the summer.”
Leisure companies, which some have predicted would be the first to suffer with
a downturn in consumer confidence, are surprisingly bullish.
John Waterworth, chief executive of Parkdean, the holiday company, said the
outlook for the business was “fairly solid”, with holiday sales ahead of
last year and caravan sales similar to 2007 levels. “Bookings are going
well,” he said.
And Graham Turner, chief executive of Tragus, the restaurant company behind
chains such as Cafe Rouge and Strada, said “people are still going out to
eat”, but that they may be doing so less frequently or spending less when
they do.
“We have been seeing that for some time and I think it is more to do with
rising costs, such as petrol prices,” he said.
Of the other quoted companies that have reported on trading recently, the
picture remains relatively upbeat, although caution is the watchword.
Luminar, the nightclub operator, announced like-for-like sales growth last
Thursday but said that it would be opening fewer new units because of
“current market conditions”.
Tui, the tour operator, announced strong current trading with bookings for
this summer progressing well, defying those sceptics who thought the
downturn would have an impact on holiday sales. It said sales were ahead 9%
compared with last year.
Colin Waggett, chief executive of the health-club chain Fitness First, said
the company had been looking at its pricing policy and promotional activity
to ensure it was well placed should the economic climate start to
deteriorate. “We’ve still got some like-for-like growth in the UK but we are
cautious,” he said.
“It seems unlikely that there is not going to be some sort of consumer
reaction but we just don’t know how deep it might be.”
While a serious downturn in financial-services employment would hit London,
the capital’s status as a home for the super rich means that some parts of
its economy are likely to sail on untroubled.
Nick Candy, one half of the luxury development team Candy & Candy, said
that sales of luxury apartments were still strong.
In the past week Candy & Candy has sold a £50m apartment and a £15m
apartment at its flagship development, One Hyde Park in London.
Further down the property market, however, things are not so rosy.
Tony Pidgley, founder of Berkeley Group, the housebuilder said: “It is bad at
the end of the day . . . our sales are down by 20%, as we’ve said, and we’re
not seeing any signs of improvement. It is pretty awful out there, but I
suppose the good thing is that there is a market and we are still doing some
business.” Berkeley is using the downturn to buy up land for future
developments.
Economists remain cautious about the outlook. The CBI, despite reporting an
upbeat picture for manufacturing, will this week lower its overall growth
forecasts for both this year and next.
Michael Saunders of Citigroup, who topped last year’s Sunday Times table for
the most accurate economic forecast, has this weekend revised down his
growth prediction for this year to 1.4%, with even lower growth, 1.3%,
expected next year.
His message is that most sectors will eventually feel the pain of the
credit-induced slowdown. They will be hoping he is wrong.
Men like Mr. Green are the reason we have inflation in the first place.
Keep rates high and allow the dogs to fight it out.
Mark , maidstone, uk
So we can all borrow more to help Mr Green and co make a few more billion and WE can suffer the debt latter, while HE relaxes spending the money we borrowed to keep him in Monaco away from the reality of normal people.
andy, petersfield,