The UK will see significant business failure over the next 36 months and the country “will go nowhere” for at least the next 15.
That was the black prediction from Mark Pragnell, chief executive of the Centre for Economics and Business Research, to the annual ABTA convention in Gran Canaria today.
During last year’s convention, Pragnell accurately predicted a 3% slowdown in the world economy and the price of oil exceeding $100 a barrell.
Now, Pragnell said consumer confidence has “fallen off the edge of a cliff” with an £11 a week drop in household income over the past year to date. The country, he warned, has its last window of opportunity only until Christmas to try to break a “vicious credit crunch circle” in which higher costs, thinner margins and greater defaults on good-turned-bad loans will become the norm.
Further state intervention is the only solution, said Pragnell. “We cannot leave Wall Street and the City to sort it out. It looks like they are incapable of it and it needs state intervention. The United States’ US$700 billion bailout is only a first step. Dealing with the problem last year and toxic debt is only part of the solution.”
The government, he stated, had to underwrite previous and future toxic debts. And the UK needed to see interest rates cut. “Stop sitting on the fence,” Pragnell appealed to government and the Bank of England.
He pointed out that the financial markets, currently battling to keep heads above water in a climate where banks had lost the confidence to lend to each other and who would be extremely prudent about lending to anyone else – let alone businesses – had previously contributed massively to economical growth.
He also said the UK had the lowest ever recorded levels of consumers’ willingness to make major purchases – and that included holidays.
There could be light on the horizon. Earnings growth will be kept down to 3% while the price of food, fuel and commodities will decline. This in turn will curb rampant inflation – the real fear of most. The euro-sterling exchange rate has most probably stabilised at current levels and oil will stick at US$89 a barrell.
Meanwhile, Pragnell warned, the travel industry had to hunker down and not expect too many calls from consumers clawing back on expenditure.
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