What says my crystal ball? Cars, jobs and Tories

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The Independent Online
THE other day one of those nice things happened that makes writing for a newspaper worthwhile: some friends in the City reminded me that four years ago I had made two predictions. One was that house prices would fall by 25 per cent in money terms; the other was that the Conservatives would win the next election, albeit with a reduced majority, because the mountain that Labour had to climb was too high. Both predictions, they reminded me, looked absurd at the time.

Anyone in the prediction game will make mistakes. It is good to know that just sometimes one gets things right; better still to know that people remember. Emboldened by this experience, it seemed useful to set down half a dozen ideas that are deeply unfashionable at the moment, but which seem decent odds-on bets for the next few years.

First, Britain is entering a period of relative prosperity, a time when the country will tend to gain ground in terms of economic growth against the rest of Europe. The last two years have been so disappointing that this might seem ridiculous, but there are two powerful reasons to suspect that it may be true. The more obvious, but less important, one is our position in the business cycle. By going into the recession early, we will almost certainly come out early, too. It is quite possible that by the end of next year Britain will have become the fastest-growing of the large European economies, although this will be more because the others are doing badly than because Britain is doing particularly well.

More important is the structural position of the British economy. The received wisdom is that we have allowed our manufacturing industry to run down to a dangerous degree and are condemned to slow growth as a result. A counter-argument is surely more persuasive, however: the manufacturing sector needed to be slimmed down and restructured.

The results are twofold. Britain is now extremely strong in important growth areas, such as pharmaceuticals, financial services and entertainment.

Furthermore, we may have 'downsized' our manufacturing industry rather early and perhaps a little too fast. But we have made an adjustment that other European countries have yet to make. What is left of manufacturing is very good and will become better. The renaissance of the motor industry is the most spectacular example, with a possibility that by 1997 (and this is prediction No 2) Britain will have the second-largest car industry in Europe, after Germany.

Prediction No 3 is that the trend of world inflation will continue downwards and that by the last years of the century (maybe by 1997, but it could take a little longer) Britain will be as near zero inflation as makes no difference. This will not be especially because of anything this country does, although the new inflation target may have some effect on policy. Britain will merely be conforming to a prevailing pattern. Inflation follows a cycle, which means that there will be periods when it rises again, but in the long- term it is clearly moving downwards.

The implication of this for the property market (prediction No 4) is that there will not be another explosion in house prices this century, although they may rise a little in money terms, say by about 15 per cent over the next five years.

Prediction No 5 concerns unemployment. There is one powerful force pushing it up, and two pulling it down. The adverse force is that British education is not good enough to match people to the new jobs which are being created, so there will be some structural unemployment for the rest of this century. The two positive forces are the low birth rate in the Seventies (the 1977 age cohort was the smallest since the Second World War) and the strength of the private pensions industry. The first, coupled with a higher proportion of 18-year-olds staying in education, cuts the supply of labour at one end of the scale; the second makes it possible for large companies to shed jobs through early retirement. Many of these early retirees will take on part-time work. Given modest growth through the middle of this decade, unemployment could be less than 6 per cent by 1997, below the European average.

If this outlook is roughly correct, it would appear to give a relatively calm and prosperous background against which the Government could fight the next election. The calm will be relative, for much of the rest of the European Community will find the next three or four years very difficult.

How relative economic success will translate into votes is anyone's guess, but my own is that this government, and probably this Prime Minister, will come to be seen as political successes. This might seem a ridiculous suggestion given their present plight. There is certainly another year or two of unpopular economic measures to come, with a dose in the next budget. But in four years it will all look rather different. Given the likely economic background and a still-divided Opposition, prediction No 6 is a Tory majority of 45 in October 1996.

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