Nothing to fear but fear itself
Once again we are in that position where we are asking ourselves: is the UK heading into recession and, if so, what does it mean? The over forties amongst you will remember only too well the recession of the early nineties and know what it means. Lots of bankruptcies and lots of unemployment. Foolish politicians seeing the first green shoots of recovery that no one else can see and my favourite joke of the time was a notice stating: "Please note, the light at the end of the tunnel has been switched off until further notice."
Depending on which newspaper you read, and how much you believe them, will determine to some extent where you see things going this time around. Economic armageddon makes good headlines, but it's not about to happen.
A quick review of all the news articles in this journal in recent months give a balance of what is actually going on. The rapid exit of Baugur from MK One and that company's appalling treatment of suppliers is probably the most dramatic of recent news. But MK One was a badly-run business that was probably doomed to failure whatever the economy was doing. B&Q and Homebase have both reported slowing sales. But both are very wealthy well-run companies that will easily ride out any economic storm that might be heading our way.
Fashion retailers have had a disappointing start to the summer season but that could easily be attributed as much to the disappointing summer as it could to the wider economic environment. In fact there are as many good news stories from the retail sector as there are bad and no one is predicting any high profile casualties.
The biggest factor that affects the retail market is housing. The much-hyped credit crunch that has saturated all media outlets for a while now has meant far fewer people are moving. When people move they spend lots of money in the B&Qs and homeware stores. But as they are not moving they are not spending. For now. The credit crunch will ease and there will be pent up demand for new homes and with it demand for the stuff to go in them. Expect the likes of B&Q and Homebase to do very well when the credit crunch eases.
When you look behind the headlines no sensible commentator or expert is predicting full-blown recession. Although the problems are different this time to previous problems this is certainly not as frightening as the 1990 recession let alone anything like the 1930s. Employment remains at record levels, and apart from the banking problems (which are severe) the rest of the economy is quite sound. We are in for a 12 month period of fairly lean but not catastrophic trading. There may be a few more MK Ones to be shaken out of the system, which itself is probably healthy, but no major retailers are likely to crash. Christmas will be disappointing but next summer should start to see the return to normality.
As Franklin Delano Roosevelt said "we have nothing to fear but fear itself". The most likely cause of a recession if we have one will be a lack of confidence created by exaggerated headlines and party political point scoring.
