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Richard Lambert and Jeff Randall
Richard Lambert and Jeff Randall

Please note "BBC Breakfast with Frost" must be credited if any part of this transcript is used

PETER SISSONS: Well there's an old saying that economists have predicted six out of the last two recessions, it was pretty difficult to ignore the economic ??? at the moment, rumours of a global slowdown have been all over the airwaves this week but it doesn't seem to have dented consumer confidence all that much. We bought 23 per cent more new cars in June, a sign that plenty of us are still keen to part with our money and house prices are still rising sharply despite some mortgage lenders warning that it's unsustainable. So what's going on, with me is Richard Lambert the Editor of the Financial Times and Jeff Randall the BBC's very own Business Editor, couldn't have a better pair to advise. Richard what's your assessment of the state of the economy, just briefly, a thumbnail sketch.

RICHARD LAMBERT: Two economies going in the UK, one the manufacturing economy which is about a fifth of the total economy having a really hellish time, high sterling affected by global slowdown, data showing falling output, there'll be some more numbers tomorrow which will look bad, one lot. Other economy, domestic economy, services sector, slowing down a bit but still moving forward, house prices rising, consumers feeling confident, spending out on motor cars and things like that, that's moving forward. So the whole mix together slowing down but not a disaster.

PETER SISSONS: So Jeff, boom and bust at the same time which wasn't part of the plan?

JEFF RANDALL: No exactly, as we can remember the Chancellor hoped to do away with boom and bust, he does appear to have got both at the same time and this could be a very boring interview because I'm going to agree with everything that Richard said¿

RICHARD LAMBERT: It's never happened before.

JEFF RANDALL: He's absolutely right, there are two economies running in Britain right now and if you look at one side you can see why they're, they're very confident, retail sales are very high and consumers feel good because the affordability of their houses has never been greater. House prices are rising but we've got to remember interest rates are at record lows for the lowest it's been for perhaps 40 years. So consumers think, well you know I'm feeling pretty good about this, my house has gone up, I'm not paying too much out, I can afford to buy things so they're buying holidays, they're buying, they're going to the shops and shopping, they're buying cars.

PETER SISSONS: But they're not buying, by and large, British goods, are they? And that surely means that the consumer boom is not sustainable because at some stage the, the goods have to be paid for, we're providing jobs overseas by doing this. So what is, what is the real immediate prospect, is there a real downside, does the interest rate cut by the Bnk actually signify that they're a bit, they're a bit alarmed about the downside.

RICHARD LAMBERT: I think that's quite an interesting question because one thing I think is quite important is that everybody was wrong-footed by the Bank of England on Thursday, including the Financial Times and including all the City analysts, everybody said they're not going to do anything. And so when they did do something we all thought crikey there must be something going on here that we haven't really thought about, it must be worse than we thought and actually I don't think that's the position at all. I think that what the Bank of England saw was that, you know, the three big economies in the world, the US, Japan and Germany are all not doing terribly well. Germany and Japan are doing actually very badly, they saw some numbers which came out on Friday showing that the services sector which has been really important to driving the thing forward was slowing down as well, they, they've got to do some numbers this week, they've got their inflation report coming out on Wednesday and I bet they looked at that and thought well maybe inflation is not looking quite as worrying as we thought, we can just have a little tweak on the steering wheel here. So I don't think, I think, you know we all got a bit excited because we weren't expecting it but I don't think it kind of changes the price of butter particularly¿

PETER SISSONS: Why, why are people spending as if there's no tomorrow, I mean is it, do you blame the banks Jeff, I mean everything, every morning through my letterbox, or my children's letterbox¿

RICHARD LAMBERT: You're just a very good credit risk¿

PETER SISSONS: No even though they may not have much money, or not, no prospect of really paying off a big loan they're offered huge loans by banks, that's a huge departure from traditional banking practice and at some stage someone's going to get hurt probably because the people who take out the loans first, there must be an awful lot of bad debt piling up at the banks?

JEFF RANDALL: Well you would have thought so but you've got to remember, look at one key figure here - unemployment, you know despite these headline-grabbing numbers from telecom companies it appears that thousands of jobs have been lost and in certain areas they have, unemployment continues to fall and has fallen for many, many, many months. In terms of consumer confidence that's the key trick, if you don't think you're going to lose your job and you don't see your friends losing their jobs, in fact you see your friends getting better jobs then you start to feel really confident, that, combined with rising house prices and that gap between what you're paying and what your house is worth, consumers in this country still, still feel pretty good. That will change when they start to see job losses close to them.

PETER SISSONS: What's in the pipeline on job losses, jobs in the City were once thought to be quite secure and suddenly people got a few frights there?

RICHARD LAMBERT: Yeah I think there is going to be job losses in the City over the coming, in the coming months, they've all been kind of holding back¿

PETER SISSONS: And they are the really big spenders, the boys with the¿

RICHARD LAMBERT: They're the people who have been putting house prices in London up, you know by 10, 15, 20 per cent or whatever, I think there'll be a, there'll be a squeeze, there has been a squeeze in the manufacturing sector going on for months. Overall the small companies are still hiring, small service sector companies are still hiring, I think unemployment will start to rise I'm sorry to say in the next few months. But I think the comforting thing is it feels nothing like it did in the early '90s when everything was going off the rails.

PETER SISSONS: The Guardian a couple of days ago has urged Gordon Brown to spend his way out of recession should the economy fall into negative growth, do you think that's good advice?

RICHARD LAMBERT: He is spending his way out of recession, I mean the government spending is now beginning to kick in, all the spending on Health and education¿

JEFF RANDALL: Yes absolutely¿

RICHARD LAMBERT: It's just really cranking up now, this enormous growth in public spending¿10, 15 per cent and that's going to be an important part of the equation in the coming months that's going to prevent the UK going into a recession I think, I think it's going to be a slowdown but government spending, one of the things that will keep the economy moving forward in the next months.

PETER SISSONS: Jeff, Gordon Brown seems to have been a lucky Chancellor although you've got to have a certain amount of skill I should imagine as well, could his luck run out?

JEFF RANDALL: He has been lucky, he's been lucky in two senses, one he, he inherited an economy in pretty good shape and two the last lot never really got much credit for that and he has brilliantly moved the, that credibility on to his own shoulders. His biggest problem is the point that Richard made earlier, looking around the world what have we got? We've got rising unemployment in Germany, rising unemployment in France, America looking very wobbly and Japan's been in the doldrums for so long we've almost written it off. It would be impossible for any Chancellor however brilliant to offset the, the negative impact of that, what's generally known as the global slowdown, that must have an impact on Britain at some time.

PETER SISSONS: Jeff Randall, Richard Lambert thank you both very much for coming in.


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