Lansons Conversations

New Year, new ways? There may be trouble ahead..

The month of January is named after the god Janus, depicted as facing both ways in looking back on the year just gone, but looking forward to the year to come. In assessing what 2011 may bring in the world of policy and business my view is that the New Year could bring two contrasting directions for the economy: one which isn’t so good for the UK; and one where material improvement is seen in economic conditions. The fortunes of many ride on which scenario will play out. The not so good first. Despite the recent good news on growth, 2011 could begin with a poor Christmas retail season leading to downgrade forecasts for many retailers. January’s retail figures and inflation forecast will be key to the following months. The Bank of England will try to maintain stability by keeping interest rates stable, although inflation may be indicating an upward trend. Economists, unsettled by RPI, may start forecasting a double dip ahead. Politically, the Coalition will want to remain calm in the face of a growing economic storm. And yet the Coalition could well begin to see the first indications of the public sector squeeze it began in October’s CSR impacting in a material way. Following the tuition fees demonstrations, public sector strikes may well then be commonplace, and while not on the scale of French unrest in 2010, is none the less unsettling for a Coalition which is struggling to contain internal rebellions anyway on cuts and defence spending. The Chancellor may have to re-write his Budget plans for March 23rd to be more austere than he thought; yet more tax increases, more raids on corporate sectors, and more pain for the middle classes. The run-up to the Budget will have seen UK banks flying in the face of the struggling economic recovery by rewarding their executives handsomely in the bonus season. The Government’s response is a much harsher outcome to the banking review that signals tougher conditions for the State-owned banks and for investment banks in the UK. The bank tax becomes the flagship policy of the Budget, in line with a G20 agreement to clobber banks internationally. Stock markets decline further on the news, and the recovery stalls in some economies that hitherto had looked better prospects for growth. The IMF casts doubt on the UK’s chances of economic growth and, to cap a rocky few months, the yes vote in May’s referendum on voting reform gains popular momentum. Ed Miliband wins the arguments most weeks at PMQ’s and Nick Clegg is revived as the most relevant person in Government. The Prime Minister’s and the Chancellor’s popularity ratings are in minus figures. Disaster beckons as the Government gears-up for its autumn conference, billed as the launch pad for Olympic triumph for the UK in 2012. The Daily Mail goes into hyper-drive and demands change at the top. On the other hand it could just be better. The growth indicated in October 2010 continues to be sustained into 2011. The Christmas season is buoyant with consumers seeking pre-VAT increase bargains. Retailers look set to beat records, while trade improves on the back of a good quarter for the service sector as they re-stock for spring. Unemployment does continue to grow, based on the public sector shake out but job losses appear to be over-predicted. Civil service numbers do dwindle but the majority are set to ease out over four years; the focus on micro business growth starts to reap dividends especially after a pro-business Budget. Osborne is praised for priming the economy by the IMF, and even the IFS. Cameron at last gets the better of despatch box exchanges with Ed Miliband by employing humour of his own, while Conservative backbenchers are buoyed by the disastrous no campaign for voting reform, ending in a defeat for Nick Clegg who looks stoic next to a smug Prime Minister at the rose garden press briefing in mid-May. Even the banks join in, with parsimonious bonuses for executives, eager to be seen to be socially useful. A shaky spring blossoms into a glorious summer with the poll lead for the Conservatives in double digits, with the Liberal Democrats in single figures. And to cap it all Cameron’s much vaunted listening campaign to revive his Big Society concept pays off, with communities finally understanding that they can have a say and embracing the chance to do so. Of course these are only scenarios so the benefit of hindsight that we will all have come 2011 will enable us to reflect on the wisdom or otherwise, of such predictions. My hunch is that things will be worse before they get better, with the timing of the upturn not to the liking of the Government.  Happy New Year.