First the bad news: there's no good news

10 February 2012

If the Bank of England's top dog can't tell us where the economy is going, what chance do the rest of us have? asks Richard Kauntze.

Sir Mervyn King, the governor of the Bank of England, said recently that it was increasingly difficult to know what might happen to the economy tomorrow, let alone in the weeks or months ahead. As the old joke goes, forecasting is hard, particularly when it is about the future.

The background remains extraordinary.  The collapse of the banking system began only three years ago, and yet quantitative easing, Euro-crisis summits and government by technocrats in liberal, Western democracies (Greece and Italy) are accepted as if normal. These are curious times indeed.

So what will 2012 bring for the UK?

I am still of the view that a double-dip recession will be avoided, but only by a whisker. Our rate of growth will surely remain very low and, frustratingly, not least for the coalition government, be largely beyond our control.

The euro, of course, is at the heart of the matter. While Brussels fiddles, Athens burns and Greece must surely default. Portugal looks likely to follow quickly, and then perhaps Ireland and Cyprus. But what will happen to the euro if a major economy such as Spain or Italy goes? If the whole party comes crashing down, a deep recession in Euroland, and as a consequence the UK, looks inevitable.

Let me paint a slightly more optimistic picture. While the crisis continues to develop in the coming weeks and months, central London will remain a safe haven for international investors, particularly those keen to get money out of their own country. The Shard of Glass will soon be completed, and London will boast Europe’s tallest building. The cranes in the City of London are busy again, and the Cheesegrater, Walkie Talkie et al will follow in due course.

Tenant-chasing will undoubtedly remain a highly competitive sport, although there have recently been some positive moves: Aon’s announcement of its decision to relocate its headquarters from Chicago to the City and hints by the Chinese government that it might look to London to be the global centre for trading of its (currently restricted) currency. All positive stuff.

To describe the outlook for the office sector in the rest of Britain as “challenging” might be judged to be a Sir Humphrey-style understatement.

The British Council for Offices takes its annual conference to Manchester this year, a regional centre which has, in many ways, led the field in regeneration and reinvention. The new Media City (technically, of course, in Salford) has provided a new dynamism.

So Manchester, perhaps, Britain’s de facto second city, has done pretty well. Other major regional centres have struggled rather more, reflected in the highest levels of unemployment for nearly 20 years. You do not need reams of statistics on the impact on the building trade. As with the economy as a whole, recovery in the construction sector will be slow at best.

At the start of the recession, some commentators talked about a V-shaped curve versus a U-shaped one. Now it looks very much like neither of those, more a bathtub, and a long horizontal one at that.

Japan suffered commentator wrath when it managed only 1% growth for 10 years after its recession. Offered to the West now, we would take it. It looks like we are in a period of profound readjustment, and will need to get used to earning less, working longer and consuming less along the way.

Second guessing the economy is difficult at the best of times and if someone as distinguished as Sir Mervyn King has little confidence in his forecasting, who am I to compete?

Richard Kauntze is chief executive of the British Council for Offices (BCO)

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