On the one hand, the brewers are gloomy, retailers are in a panic and cutting prices before Christmas in an attempt to drum up trade, while manufacturers vie with farmers in the desperation stakes. The Confederation of British Industry's distributive trades survey showed the largest fall in business confidence in the survey's history and retail sales growth last month fell to its lowest level since March 1995. Only the prospect of further cuts in base rates as the Bank of England tries to steer the economy away from recession is now helping to support the stock market.
This contrasts sharply with surveys of consumer spending, which suggest that consumers intend to spend this Christmas and are quite optimistic about the prospects for 1999. Visa says 80 per cent of Christmas shoppers intend to spend as much or more than last year, and American Express says that 34 per cent of its poll sample expects to be better off in a year against only 17 per cent who think they will be worse off. Almost half of all home-owners expect their properties to be worth more in 12 months against only 5 per cent who are expecting a fall.
So are we, the general public, living in a fool's paradise, taking Gordon Brown's reassuring words literally, unaware of the doom that awaits us? Should we be tightening our belts and saving what we planned to spend, or are businessmen busy talking us into a recession that could be avoided if we all keep our nerve? It could be that there is always a time-lag while the public absorbs the news: a sudden jump in unemployment will revive fears of job losses and the next consumer survey will show the public has caught up with the reality. If so, much depends on how far and how fast the Bank of England is willing to cut interest rates.
The prospects are frankly not encouraging. They have been too slow on the way down just as they were too slow in raising rates last year. Base rate is almost 2 per cent higher than it should be, and the economy now needs a real signal, not a feeble gesture. It takes three to 12 months for rate cuts to stimulate much spending, and there is little hope that Gordon Brown will risk a fiscal stimulus next March. If retailers cut back on inventories, manufacturers reduce investment and exports continue to suffer, the economy could easily contract next year.
Growth could still remain positive, however, if the Bank of England gives a real lead, and the rest of us do our patriotic duty and spend a tad more than we earn in 1999. I hope to be pleasantly surprised, but I am am not counting on it.
Isabel Berwick is on holiday.Reuse content