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A surprisingly sunny scenario

Martin Vander Weyer

Tuesday, 1st July 2008

Martin Vander Weyer finds CBI chief Richard Lambert in an unexpectedly upbeat mood, despite threats to British business from the credit crunch and a dangerous surge in inflation

‘I will now paint you the sunny optimist’s picture...’ Richard Lambert, director-general of the Confederation of British Industry, is warming to his theme.

And in many ways it’s a surprising, even contrarian, theme, since he has just told me by way of an opener that the current credit crunch is as serious as anything he’s seen in a career of more than 40 years – 35 of them as a Financial Times journalist and editor, a three-year stint on the Bank of England’s Monetary Policy Committee, and at the CBI since 2006.

‘It’s a global shock on a substantial scale and we haven’t yet seen the end of it,’ he says, much worse than the banking crisis of 1973-74, which really only affected the City: ‘I can remember going to see friends in the countryside and saying, “You realise that capitalism has nearly come to an end?” and they’d say “What?” It didn’t have a big impact on the real economy. It was oil prices that did that.’ But this time round, the financial crisis really is a big one. ‘Paul Volker [chairman of the US Federal Reserve before Alan Greenspan] has called it “the mother of all crises”, and I think I’d go along with him.’

What’s more, we were talking in the week that the Governor of the Bank had to write to the Chancellor to tell him that inflation (on the relatively understated CPI measure) is set to rise above 4 per cent and to stay well above target next year. Yes, Lambert acknowledges, that’s a big one too. ‘It’s the issue our members are most concerned about. Energy and other input costs are rising at their fastest for many years. The question is: can the first-round impact of this inflationary pressure be contained? Where we went wrong in the Seventies was that oil and other prices shot ahead, central banks and governments failed to contain them, and they were translated into accelerating wage inflation.’

‘But,’ he observes in his benign, professorial style – a pleasantly cerebral contrast to his testosterone-packed, tub-thumping CBI predecessor, Digby (now Lord) Jones – ‘If you look at wage inflation now, it’s subdued. And remember that oil prices have been accelerating dramatically for several years and that has not yet passed through into a long-term surge in inflationary pressures.’

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