With the recent General Election gradually fading from most people’s minds it is the economy that is now taking much more public attention especially here in central London.
The short-term economic outlook looks less rosy. The picture for the housing market is very flat, consumer spending has reduced significantly during the first half of this year, manufacturing output is down and inflation is nosing upward towards the government’s target of 2%.
Whatever the official statistics say it is personal experience and contact which can often give the truth to the way the public feels about the economy. In this constituency with its massive retail opportunities and in many cases, very high housing costs, the signs are very clear – in some areas houses and flats are just not selling at anywhere near the prices of 2004 and many of the specialist retailers in the Capital are feeling the pinch.
During April and May there seemed to be a constant flood of bad news with British jobs being lost, especially in manufacturing companies such as MG Rover and Marconi. With the recent news that British American Tobacco is moving some of its manufacturing to China and closing its Southampton operation it is clear that China is having a major impact on Britain’s economy and indeed on much of Europe’s business.
I have spoken for some years now about the growing importance of China’s economic power in the global economy and I believe the next two years will see an even greater impact from that country on all parts of Europe. Unemployment in France and Germany remains very high and both their governments seem lost as to know what to do about it. In Italy, competition from China has become the stuff of nightmares for many businessmen. Italian industrial production has fallen in each of the last four years and its output at the end of 2004 was lower than at the end of 2000.
Our much more flexible market economy has so far been able to handle the loss of manufacturing capacity to the Far East but we are facing huge levels of cheap imports, especially in areas such as clothing. Export trends for us are not good. In April the CBI published a report which showed that export orders were the most disappointing since autumn 2003. If that trend continues through the rest of the year then we are facing major difficulties.
The Bank of England’s Monetary Committee (MEPC) has kept interest rates at 4.75% for ten months now and it is likely that deteriorating economic signals mean that its next movement will be downwards.
A consumer slowdown is not the worst thing that could happen here providing the brakes are applied gently but it means that exports and investment must not fall back at the same time which is what seems to be happening in the early part of the summer.
The political concerns about governing Europe have made headlines recently but I believe it is more important that governments turn their attention to the weaknesses in their economies. China is not a country that will go away. Protectionism and isolationism are not conceivable in this day and age and therefore all European countries and especially Britain must look for ways to succeed with the growing availability of cheap products from China and other parts of the Far East. We have faced the Asian Tiger economies before but I believe this time it is different. China is an economic superpower in the making with a capacity far bigger than anywhere else in the world apart from America.
If we do not find a way to benefit from China and India’s rise in prosperity then our output will fall, jobs will be lost, consumers will give up buying and our high house prices will have to take a fall. It is also clear that no economic help will come from mainland Europe with its faltering markets.