The short sharp stick
Hello. We're back.
And if it's not too late, I'd like to wish you a happy new year.
We can only hope it will turn out to be happy. If you were reading the same articles as I was over the holidays, I won't be surprised if you're feeling gloomy about the next 12 months.
Remember that old phrase from Gilbert and Sullivan's Mikado - later re-used by Willie Whitelaw - the "short sharp shock"? The danger is we may get one part of it - sharp - but not the other - short.
The grimmest forecasts suggest this recession will be much more severe than the one we suffered in the early 1990s. One think tank, the Centre for Economic and Business Research, predicts the economy will shrink by 3 percent. The average forecast is for growth to fall by around 1.5 percent.
And warned it could also last longer. If the economy was to follow the same timetable as last time and re-start its growth by this autumn, it argues we should already be seeing the early green shoots of recovery by now; as yet, there is no sign.
Exactly how to revive the economy is going to occupy a lot of the programme in the next few days. In particular, the use of cheap credit to stimulate borrowing and spending.
The Bank of England's interest rate controllers meet again this week; they're widely expected to cut the Bank's core rate yet again, from its current low of 2 percent.
It's a prospect that frightens some Working Lunch viewers, who've already seen the amount they earn on their savings fall.
As Heather Simpson pointed out in an email, "it means a reduction in income of up to 50% and few workers are taking this reduction in pay. Pensioners have already had to make cutbacks due to inflation, high food prices and huge increases in council tax."
Another viewer, David Buttle, reminds us that it's not just pensioners who suffer from interest rate cuts. He's 21, and has been living off savings while he grows his new business. "I am terrified of the ever decreasing interest rates!" he writes.
V Whitworth says "the prudent are being penalised", and is so annoyed by low interest rates that she (or he - I'm sorry, it's not clear from the email) is going on a savers' strike - cashing in Premium Bonds and withdrawing cash from the banks and building societies until they pay enough interest to get it back.
But we forget something. While the headlines will focus on the Bank of England's bank rate - that 2% rate - the high street banks are offering more than that in their race to build up their cash piles.
A quick check with the website shows a short-term fixed rate bond paying 5.1% interest, Internet savings accounts offering 4.5%, and savings accounts paying 4.5% or more, in return for giving them a month or so's notice when you want the cash back.
As Working Lunch viewer Dr Robert Doy emailed, "savers must take responsibility for their affairs. They must constantly monitor their savings and move it as necessary ... not leave it in one place and throw up their hands in despair when interest rates fall."
Moneyfacts points out the cost of sitting on your hands; while there are higher interest rates available, the average savings rate on a no notice account now stands at just 1.48%. And more than one-third of the savings accounts on offer pay interest of just 1% - or even less.
If interest rates are cut again this week, those accounts won't have much left to trim.
PS You may have noticed that this blog is rather late in the day. I'm going to blog in the afternoon, after the programme. But I'll keep you up to date during the morning with ultra-brief updates on .
Comment number 1.
At 7th Jan 2009, dennisjunior1 wrote:Declan:
[I won't be surprised if you're feeling gloomy about the next 12 months. ]
I hope that the feeling gloomy will be easier in the next 12 months...
~Dennis Junior~
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Comment number 2.
At 7th Jan 2009, dennisjunior1 wrote:Declan:
[PS You may have noticed that this blog is rather late in the day. I'm going to blog in the afternoon, after the programme. But I'll keep you up to date during the morning with ultra-brief updates on]
Thanks for the updated information on the decision you have made....
~Dennis Junior~
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Comment number 3.
At 11th Jan 2009, David Lilley wrote:Declan,
Happy new year. I have watched you for years.
When will we have an economics editor's blog again? Doesn't Hugh wish to say anything? Evan was always right and is missed.
Couldn't one of you say that G Brown is a historian and not the world's leading economist. I always think that the ³ÉÈË¿ìÊÖ has a request for more funding on GB's desk and therefore refrains from requesting he be certified.
When Kenysian economics is ever mentioned it means one thing only, the multiplier effect. This does not work in reverse. Increasing pensions and benefits is not an economic stimulus but an increase in our burdon which is alraedy growing as the population ages and people loose their jobs.
We have been living on subs. We have spent the next 4 years of GDP to stimulate an otherwise underperforming economy. The next generation of company and private pensioned OAPs are short of £200b in pensions tax credits and a 40% fall in the FTSE 100 since its peak of 7000 nearly 10 years ago. The two falls are related as the £200b was denied from investment in UK PLC, diverted to the poor with a consequent multiplication of the poor to the detriment of the poor and those who pay for them.
We cannot suddenly return to massive credit and get things rolling again. House prices went to average house price equals 9.3 times average salary when the historical index is 3. House prices have to fall 60% from their peak. When first time buyers dried up and their average age was 33 years old we continued to inflate the bubble and sucked in 1m buy-to-let suckers because of the revenue stream from stamp duty and IHT and the exponential cost of the poor and our multiplication of the poor.
The Chancellor's GDP estimate for 2009 at 0.75 to 1.25% is already rubbish before 2009 has begun. Try 10% not 1.5%.
50% of the next generation of graduates will not find work yet have loans of up to £30,000. Art students will never reach the £15,000 freshhold to start paying their loan back as most arts graduates do not get salaries in excess of £10,000.
Declan. Please take this seriously. ITV and Channel 4 are bankrupt. Dave is at least revenue for HMCE and that is the key word.
I like honesty and that includes putting your money where your mouth is. I put everything into cash before Christmas in 2007. I decided to buy when the FTSE fell to 3900. I did and then pulled out. My new low is 800.
I am not a prophet. Karl Popper demonstared that prophets can not possibly exist. But I can read that 10 years of redistribution, redistribution, redistribution and then much more of the same will kill the Golden Goose.
Meet me. I will say 10% and £50. What will you say? I am a humble mechanical engineer who appreiciates that 2 plus 2 equals 4, 1m immigrants with green cards in 2004 when we had 5.5m on benefits who refused to do that work, no exodus of brains due to a surtax but 200,000 middleclass leaving every year.
Financial services was our biggest industry. Now the biggest worry of the banks is to find 12% for Gov preferencial shares bought at 60p when they were worth £12 a year ago. Yet the ³ÉÈË¿ìÊÖ and others consider this a bank bailout and thought it was cool to charge UBS on empty permises.
David Lilley
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