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UK output won't return to 2008 level until 2014, economist warns

Dennis Turner, former chief economist at HSBC, slams UK's ‘ridiculously low’ level of trade with emerging markets.

UK output won't return to 2008 level until 2014, economist warns

It could be two more years before the UK recovers from the slump caused by the global financial crisis and returns to the level of economic output seen in 2008, former HSBC chief economist Dennis Turner has warned.

He said this will be driven by improved business investment and increased trade with emerging markets to offset the decline in consumer spending and government cutbacks.

Turner's comments were made ahead of Thursday's positive data from the Office for National Statistics, which showed the UK finally dragged itself out of a double-dip recession in the third quarter of the year, when GDP grew by a surprisingly strong 1%.

Missing out on emerging market growth

Turner described the recent level of trade with emerging markets as ‘ridiculously low’, saying it must increase if the economy is to rebalance.

‘If you add up all of Britain’s exports to the four Bric [Brazil, Russia, India and China] economies in 2009, the figure that you get is about two-thirds of our total exports to the Republic of Ireland,’ Turner said.

Speaking at a Citywire conference for wealth managers, the economist pointed out that consumer spending had driven economic growth for decades, even when borrowing was needed to maintain the level of growth.

Consumer spending

Consumers accounted for around two-thirds of spending in the UK in 11 of the 13 years before the recession, with annual consumer spending growth running at an annual average of 3% in real terms.

As a result, consumers contributed 2% of GDP growth every year, with the average rate of growth pre-crisis 2.5%. The country can no longer rely on consumer spending to drive the economy forward.

‘The consumer accounts for the thick end of two-thirds of every pound spent in Britain, and if we look at the reasons for the recession it’s pretty clear the consumer has actually retreated,’ he said. ‘They’ve been savaged by very high levels of debt, where the debt to income ratio in the personal sector has been around 160%.

‘[Spending] has been savaged by inflation, which has been running at least twice as fast as consumer incomes, and secondly unemployment has created uncertainty, which has had a huge impact on people’s attitude to saving and borrowing.’

Rebalancing towards business

In this context, the business sector will have to be the driving force in the future, and Turner believes this is possible.

‘If there’s a success story in the British economy at the moment it’s clearly not the consumer sector or the public sector, it is very much the business sector,’ he said. ‘The business sector is sitting on a pile of cash of about £800 billion, it needs to invest, and it doesn’t necessarily need to borrow.’

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9 comments so far. Why not have your say?

Steven McCann

Oct 29, 2012 at 13:53

Who's going to buy our output when countries are in the thick of austerity, our prices are high versus emerging markets and developed economies are cutting back?

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peter montgomery

Oct 29, 2012 at 15:34

Regretably the UK doesn't produce the goods the world wants to buy(unlike Germany) and it beggars belief that this country has allowed its industrial base to decline to virtual insignificance.Why is it that the Germans can land quality mens clothing,chocolate,pencils,cars,trainsets and power stations in the UK at affordable prices despite Sterlings depreciation from its Euro highs?

An important point also to bear in mind is the UKs habit of lecturing others about democracy,political freedom et al.Thats not a great idea if you're trying to sell them stuff.I cant see the Russians,Argentinians and Chileans as great export markets leaving the way clear for Germany,Japan and South Korea to clean up.Not observed much political negatativity from their Foreign Ambassadors in contrast to our 'Post Empire' posturing.

All very depressing.

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Oct 29, 2012 at 22:14

So who's going to believe a ex bank economist: I vaguely recall that they had something to do with some big event back in 2008!

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Oct 29, 2012 at 23:35

So for years the false boom driven by credit added 2% to GDP !!

This means that elimination of the false boom would mean that the real GDP should be 10-15% lower than it is.

And then there is the reduction of the GDP as borrowers repay their debts.

Whilst I suggest that the figures may not be that high, it does explain why we have to go through a drop in GDP to reach normality, and that this is not really a recession - just a correction to get back on the raod we should have been on all along.

And those who drove the GDP to unsustainable levels now try to tell us that the government are causing it to fall !! Balls.

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Oct 30, 2012 at 00:55

What this expert says makes perfect sense. It's something I've noticed for years as an engineer. This country grew in Victorian times by making heavy investment in technology and engineering, took well-planned "gambles" with new ideas, and established a world lead. Since then, despite having a wonderful infrastructure built over 50 years or so, it has let the opportunity slip through its fingers. We are now far too good at being negative, saying we can't do it, and this stops us getting our fingers out and really making things happen. Bring back the forward thinking and the "can do" mentality of Victorian times, and we are as good as anyone. Let's also stop knocking success and anyone or any company who/which gets rich (e,g Tesco, banks, drug companies), as our wealth depends on them in the medium and long term! We still have wonderful engineers and thinkers, it just needs everyone, particularly govt, politicians, company directors and bankers/finaciers to believe it, to invest in technology and engineering and get back our world position. It needs to be done VERY VERY soon, or we'll be overtaken and left in the dust!!

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Paul Kiver

Nov 03, 2012 at 09:05

I've been working in Mongolia for the past 14 months. The economy here is forecast to slow next year to only 10-12 percent! When I fly out here and visit the expat haunts I hear the Germans and the French; where are the Brits? I know the Mongolian Stock Exchange has employed the LSE to modernise its trading and governance but that the only high profile UK link I've been aware of. The possiblities out here are huge with a growing middle class to consume and a dilapidated infrastructure that is begging for construction and foreign expertise (there is none here in anything) - even British expertise - but where are the Brits? Missing the boat again, I suspect.

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Steven McCann

Nov 03, 2012 at 17:30

What's the point of looking for "opportunities" in someone else's backyard when our backyard is in serious need of repair?

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Paul Kiver

Nov 04, 2012 at 05:28

If nobody is buying the carrots that you're growing in your backyard, Steve, then you've got to 'get on your bike' and sell them around the neighbourhood. When you've sold some, you grow some more, prhaps employ a gardener, and things in your backyard begin to look a little better. That, in turn, provides funds to repair the greenhouse and you then start growing and selling tomatoes.

150 years ago there was one global economy and it was British. Move on, and thanks to the Tories disaterous 80's policy that saw the rundown of the UK's manufacturing base, we are now but a bit player but we could, should and can be doing better in others' backyards to improve our own.

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Nov 04, 2012 at 09:33

Paul - I agree with your first paragraph. But you appear to be deep in the mire of denial blaming the Tories for our loss of manufacturing.

The Tories did not cause the far East to work for much lower wages, or not to operate demarcation, and not to go on strike. For far too long we subsidised inefficient industries to an extent the Kremlin at the time would have been proud of. In this way we ignored the underlying economic facts until the burden on the taxpayer and the hidden damage being caused could no longer be tolerated, so it had to be stopped. Like all such reckonings (like those we face now) it was painful, but it did start to wake people up and made our industries which survived far more efficient.

In the UK we have always had a crisis after a free spending vote buying government is toppled. The problem is that the doctor is often blamed for the illness, and then the short sighted electorate go and put the crass lot into power again ! Politics is now the subject of sound-bites rather than prudence and common sense as the masses want gratification now rather than long term prosperity.

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