Forum for National Recovery: Doubts raised over recovery: Interest rates
Wednesday 09 December 1992
Professor Minford, professor of economics at Liverpool University and a long-standing critic of Britain's membership of the European exchange rate mechanism, said recent government claims of improvements in the economy had been met with justified scepticism.
In fact, the risk of a further downturn was acute, he said. 'With real interest rates of 3 per cent to 4 per cent - possibly higher because inflation is very much a beaten enemy - how can we recover? I do not know how an economy in such a depressed state can pick itself up off the floor when the cost of money is as high as that. The balance of risks at the moment is such that we must take the necessary monetary action to avoid a worse scenario.'
Professor Minford's pessimism was shared by many debating the question of whether the recession was turning into a slump. Lynne Armstrong, a councillor from the south coast of England, said no one could expect the economy to strengthen while unemployment was so high. Employees were also consumers: 'Someone buys a car and it's big news. As far as I am concerned this is a slump and since the 1979 Tory manifesto we have been heading for this.'
David Kern, chief economist for NatWest bank, said: 'Things are pretty bad in this country, but I do not think what we are facing is anywhere near a slump. It is part of this country's mentality to always focus on the negative.' One way to reinvigorate the housing market was to raise mortgage tax relief in the short-term, but then to abolish it in the long-term.
Edward Kalfayan, of Digital Print Technologies in central London, said Britain's 'Alice in Wonderland' banking culture and the destructive 'food chain' of company takeovers were largely to blame for the present recession. London's empty office buildings had become 'the mausoleums and tombstones of our economy'. He said that an engineering company he had once worked for had been taken over by 'nonentities. It was a 10,000-man company. The chairman got a knighthood and 8,000 people lost their jobs.'
Graham Roberts-Phelps, a sales manager, argued that it was wrong to place too much faith in lower interest rates as the key to recovery. The essential pre-condition was a boost in general confidence and it would take years to secure that. People need to have optimism rather than feel they were simply 'treading water'.
Richard Hyman of Verdict Research was applauded when he spoke of the 'total lack of leadership' in Britain, 'A lot of people are not discharging their responsibilities, which is one of the reasons why we are having this conference at all. We need to feel we are going in some sort of direction, not staying in limbo, which is pretty much what is happening at the moment.'
Bernard Hallewell, an economist, echoed those sentiments, saying a new economic design was needed to replace the 'beaten up old model' that had served the country so badly. 'We need to understand the problem we face. We do not know what we are trying to achieve.'
John Benstead, a redundant cement company worker, said large- scale redundancies in manufacturing were contributing to problems of deskilling. 'If you remove a lot of over-40s, there are not the old hands around for the younger ones to gain essential experience from. Underlying it all is the constant short-termism. I see ourselves as being in absolute decline, plummeting into an abyss.'
Tim Congdon, the economist from Lombard Street Research, said that the crucial determinant of Britain's economic prospects was the quantity of bank deposits. 'In the last year the banking system has hardly expanded at all. The crucial thing is to get the banking system expanding again.'
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