LONDON, Sept. 5 (UPI) -- Now the recession watch in Britain is getting really serious. Punch Taverns, the country's largest operator of pubs, a classic symbol of English life, has decided to scrap its dividend to shareholders after a drop in sales of more than 3 percent. The company blamed "challenging trading conditions."
Alastair Darling, who as chancellor of the exchequer is the government minister in charge of the economy, warned last week that Britain was facing its most serious economic crisis in 60 years. Housing prices have dropped almost 15 percent, and the fall is now hitting the super-rich market in London's most fashionable districts. The pound has reached a record low against the euro, and the latest GDP figures suggest the economy shuddered into stagnation last quarter, recording zero growth.
The government announced this week a $1.1 billion emergency measure to help the housing market, announcing a one-year holiday on the stamp duty, or sales tax, on house purchases worth less than $300,000. Housing industry spokesmen dismissed it as "sticking a plaster (bandage) on a gaping wound," and the housing charity Shelter noted it might help 15,000 people in a year when 45,000 are facing losing their homes through foreclosure.
A survey by the labor unions' parent body, the Trades Union Council, claimed this week that one in 10 British workers fears losing employment in the coming year as job insecurity spreads from the housing and finance sectors into the rest of the economy. A member of the Bank of England's Monetary Policy Committee has warned that up to 2 million people could find themselves out of a job by Christmas if the current grim economic trends continue.
The latest survey by the Confederation for British Industry says that expectations for manufacturing output over the next quarter are at a 76-year low, with a third of the 600 firms that took part in the survey predicting a drop in production. And despite the advantage expected from a falling pound, the CBI expected little relief from the kind of export book the United States has enjoyed in the last year because of falling demand among Britain's main customers in Europe. At the same time, the British Chambers of Commerce has warned of an imminent recession, saying it expects the economy either to stagnate or shrink over the next six to nine months.
Nonetheless, the gloom and doom, particularly that cry of pain from the chancellor of the exchequer about that worst crisis in 60 years, seem somewhat overdone. It was less than 30 years ago that Britain had 3 million unemployed, or 12 percent of the workforce, and a fast-shrinking economy. This was during Margaret Thatcher's first term in office, when she applied some ferocious monetarist medicine to burn inflation (and inflationary expectations) out of the economy, medicine that paid dividends in the long term as Britain became the most dynamic of Europe's big economies.
And it is just over 30 years ago that inflation reached the frightening peak of 27 percent, compared with just over 4 percent today (a figure that seems bound to drop as housing and fuel costs fall). And while the banking sector has been hard hit by the fallout from the subprime mortgage crisis and the credit crunch, sober analysts with a sense of history have noted that the losses in global banking (as a proportion of their capital) are so far still considerably smaller than they were during the Third World debt crisis of the 1980s.
There is a real sense that in Britain, as in the United States and the other developed economies, we are capable of talking ourselves into depression. And since in Britain a fair amount of that talking is still done in pubs, despite the dwindling trade, the fall in the sales of beer and the declining profits of the pubs themselves help to intensify the gloomy conversation. (It is also a fair bet that one significant reason for the decline in pubs has been the government's ban on smoking in all public places. Since more than a quarter of British adults still smoke, they now have a strong incentive to drink at home.)
It is ferociously difficult to make sensible predictions about modern economies. They are simply too big, too complex, too interdependent and have too many variables, from energy and food prices to currency movements. But one measure usually has proved more reliable than most, and that is the stock market, where values are based strongly on prospects for future growth and profits and dividends. And the American and British stock markets are still twice as high as they were when Alan Greenspan made his memorable warning about "irrational exuberance" a dozen years ago.
Stocks may be set for a big fall. September historically has proved to be an unhappy month for Wall Street. Two years ago, when the Amaranth associates hedge fund ran into serious trouble, analysts began talking of the September curse, noting that ever since the 1929 crash stocks have dropped in the month after Labor Day by an average of 1.2 percent, while the other months have seen an average rise of 0.6 percent. And then October itself has tended to be the month for dramatic falls, from 1929 itself to 1987.
The next two months could be a critical time for talking ourselves into trouble, whether in American bars, French cafes, German beer gardens or British pubs.
