There is in investment circles something known with black humour as the "99 per cent club" – companies whose shares have fallen so precipitately that they now stand at just one hundredth of the stock market value they enjoyed at their peak. Marconi has not yet – quite – been admitted to membership, but the humiliation is almost as severe. The company's shares fell by more than a half yesterday. It stands £3bn in debt and its markets, especially in continental Europe, are collapsing. More to the point, 4,000 jobs are at stake, 1,600 in the UK, in addition to thousands lost earlier this year.
It has, reportedly, been a galling experience for Lord Weinstock, who arrived in Britain as a child before the war, and who built GEC (as Marconi was until recently more familiarly known) into a British success story. It was never in a position seriously to threaten its German and American rivals, but Weinstock's GEC was at least competitive and, above all, solvent. For most of the 1990s stock-market scribblers wondered aloud what would become of GEC's "cash mountain" of £3bn. Now we know. When Lord Weinstock retired his successors blew the money and disposed of the defence and medical equipment arms to create a "focused" telecoms equipment group. It was a fashionable move, when the most absurd growth projections were being placed on that sector's prospects. The herd mentality of the City was obeyed. Marconi was left badly unbalanced and vulnerable.
Mauled it may be, but Marconi will probably survive, if only because so many of its competitors are also lying in the corporate recovery ward. Its difficulties are similar – in type if not in scale – to many in the telecoms sector, most notably in recent months BT, Cable & Wireless, Nortel and Nokia. Rather more worrying are the signs that the slowdown in the TMT (technology, media and telecoms) sectors, which have been such powerful engines of economic growth over the past few years, is seeping out into other areas of the economy. Companies elsewhere in the service sector report a "screeching halt in business". The engineering firms have already declared themselves in recession. We know that growth is sluggish in much of the rest of Europe, that Japan's structural problems have hardly begun to be solved by Junichiro Koizumi, and that in the US confidence is not what it was. We seem to be hearing the phrase "soft landing" rather less often these days.
And yet the signals in the British economy remain tantalisingly mixed. Retail inflation remains subdued, even as retailers report brisk trade, house prices remain on an upward trajectory, and consumers seem confident enough to be indulging in record levels of debt. These mismatched indicators make policymakers especially nervous, as the picture is so unclear and the consequences of a policy error could be so disastrous.
The natural tendency in such circumstances is for caution to tip over into inaction. Perhaps for that reason both the Bank of England's monetary policy committee and the European Central Bank left rates on hold yesterday. Reductions in British rates over the past year or so should be enough to prevent the economy tipping into recession, or worse. The UK economy is better placed than many. However, the risks remain on the downside. As with its plans for reforming the public services and the welfare state, Mr Blair and, more acutely, Mr Brown may find the management of the economy and the public finances a much more difficult challenge in their second term than their first. Abolishing "boom and bust" may prove more difficult than Mr Brown ever supposed.Reuse content