A visit by Bank of England representative Geoff Harding to the Swindon Chamber of Commerce business breakfast this morning (Friday) could not have been more timely.
It was the morning after the night before, when the Bank launched two new stimulus packages worth £140 billion in response to the worsening economic outlook.
In his address at the Mansion House, Sir Mervyn King, the governor of the Bank of England, delivered a speech that many commentators were today calling ´apocalyptic´.
He said the Eurozone debt crisis had pushed up funding costs in the banking sector, meaning the cost of borrowing for businesses and households had risen.
It had created a "large black cloud of uncertainty" over the global economy, meaning companies and households were cutting back on spending, he said.
The answer from the Bank and the Treasury was to make £80 billion of cheap loans available to businesses and households through the high street banks, while making available a further £60 billion a year to high street banks to make sure they have enough cash in hand.
Geoff (pictured), deputy agent for the Bank of England in the South West, said it wasn´t his job to make predictions about the economy, but rather to talk to businesses and feed information back to the policy makers.
“We´re coming up to the end of the second quarter,” he said. “The question is, what has the quarter been like for you, and how is the third quarter looking?”
Using graphs and his in-depth knowledge, Geoff gave a snapshot of the economy in June 2012. Line graphs illustrated consumer spending, business investment, the state of the labour market, and they all showed the same thing – a peak in 2006, a nosedive from 2007 to 2008, a gradual recovery throughout 2009 until last Christmas, and a second, less severe decline.
“The economy is still four percent smaller than it was in 2008, with no clear sign of when that loss might be made up,” he said. “Economists are predicting that the UK economy will not return to pre-2008 levels until 2014.”
“There are crumbs of comfort, though. Consumer spending, which accounts for two thirds of the UK´s economy, fell in the 18 months after the recession, but over the last two quarters it has started to rise again.”
Meanwhile, households continue a trend of saving or paying off debts, rather than spending, he said.
Barring the kind of high-impact, low-probability event that economists feared, the economy would show growth in quarter three or four, depending on the impact of the Queen´s diamond jubilee on economic output – last year´s royal wedding and the golden jubilee of 10 years ago both hit output hard.
And inflation, he said, would probably “dawdle around the three percent mark.
Opening the floor to questions and comments, the same word came up again and again: confidence.
One business leader said firms were ´paralysed with caution.´ “Some people have to be brave; to get out there and grab opportunities,” he said.