Julian Knight: Don't let's get nostalgic for 1981 and all that
Sunday 01 May 2011
At big moments it's not unusual to get a little nostalgic and look for parallels with the past.
And some spent last week comparing 2011 with the last great royal wedding year of 1981. That was a year of economic turmoil, mass unemployment, seemingly terminal industrial decline and an increasingly unpopular government cutting spending. The prices of staple goods, services and fuel were rocketing and the streets were ablaze with riots. Remind you of now? Yes, I thought so. But the differences are as great as the apparent similarities between 1981 and 2011.
The deficit is much worse and the crimping of government spending has to be harsher than 1981. But then again the public sector has had years of money splurged on it and is in a much better state than in 1981. The riots on the streets are not – as yet – tinged by race, and the lack of jobs is affecting – how can I put it? – the middle class. It's not Toxteth Liverpool 8 exploding but a Tesco Metro in Bristol. Tuition fees are not of the same magnitude as what in 1981 was a reaction to lack of jobs and systematically racist policing.
This time round there is no dismantling of the economy of one part of the country. A Thatcherite "harrying of the North" was taking place between 1979 and 1981: of the million-plus job losses, 93 per cent were north of a line between The Wash and Bristol. This time the pain has been more evenly spread. Manufacturing is actually doing better, and the protection of the bank moratorium on repossessions has meant only minimal numbers have lost their homes. Individual incomes are on average two and half times higher than they were in 1981: if you've still got a job and a mortgage then your true disposable income until very recently has probably never been so high.
One area now much worse than in 1981 is personal debt. We have nearly £1.5trn of it between us, and some who paid top price for property in the parts of the North and West will spend years, if not decades, in negative equity. Excessive debt narrows options in life and whereas it boosted our growth post-1981, over the coming years it will prove a major drag. But this aside, you're much better off living in Britain in 2011 than circa 1981.
Price of summer rate respite
A third of Britons predict an interest rate rise over the summer months, according to Lloyds – and they are almost certainly wrong. But I can't blame them: until about six weeks ago I thought a rate rise due some time over the summer. The Monetary Policy Committee (MPC) thinks inflation should fall back during the course of the year, making a rate rise unnecessary. Certainly the most recent inflation figures indicate a slight dip, and it seems the fear of job loss is keeping a lid on wage increases, which are running at around 2 per cent in the private sector.
But one swallow doesn't make a summer on inflation. There are still huge pressures from abroad – not least fuel – which could again push prices even higher. The MPC is taking a huge risk with inflation. Spare a thought for savers, many of them pensioners, who are relying on savings. They are earning on average 0.46 per cent against a real rate of inflation in key goods and services well above 5 per cent. They are getting poorer even faster than workers, who are earning 2 per cent increases on average.
The real danger is that by holding off on interest rates the MPC is embedding inflation as well as ensuring that when rates do go up they have to go up sharper and faster than they ought. Everyone talks about a double-dip recession in 2011. But this has now almost certainly been avoided, with last week's output figures – skewered negatively as usual by the Office for National Statistics' practice of early announcement and the volatile construction industry. But the fear a few years out has to be of a fresh recession to get domestic inflation back under control.
US reality check
The recent decision by Standard & Poor's to change its view of US government debt to negative is a huge knock to those – such as Shadow Chancellor Ed Balls – who have pointed to the Obama administration go-slow on debt reduction as a model for how we should be doing things here. The US has for a generation escaped the norms of deficit control due to its position as the world's biggest economy and the holder of the global reserve currency.
This comfy position of deficit denial could never be aped by Britain: we have a fraction of the population and a rather insignificant currency. But now with the downgrading of US debt, even the mightiest of countries has a clear sign that it can't continue to live in a fiscal never-never land.
Last week analysts put the odds of a proper downgrade of US government debt over the coming weeks at one in three. Such a situation would have been unthinkable before the credit crunch.
At some point, it's going to have to stop borrowing and what's more the dollar's position as the world's reserve currency looks ever more tenuous. If this is happening to the US, what does Ed Balls think would happen to the UK?
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Scientists create transparent mouse complete with see-through organs
- 2 Pope Francis issues top 10 tips for happiness
- 3 Disney heiress Abigail disowns her share of family profits in West Bank company
- 4 Israel's propaganda machine is finally starting to misfire
- 5 Amazonian Indian tribe filmed making contact with Brazil village in rare video footage
Land for gas: Merkel and Putin discussed secret deal could end Ukraine crisis
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Boozy, ignorant, intolerant, but very polite – Britain as others see us
A new Russian revolution: The cracks are starting to appear in Putin’s Kremlin power bloc
- < Previous
- Next >
iJobs Money & Business
£300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...
£500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...
£200 - £500 per day + competitive: Orgtel: I am currently working on a large p...
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
Day In a Page
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000