Should you happen to spot me these days lurking outside a Calvin Klein boutique, notebook in hand, I assure you I have a serious purpose. I’m applying the method of the former US Federal Reserve chairman Alan Greenspan, who relished statistical minutiae and believed that sales of men’s underpants – an item so out of sight that a chap could readily choose not to replace worn-out ones when he senses an economic pinch ahead – offer a reliable indicator of impending downturns.
That’s precisely the sort of trend we need to watch right now, when the Office for Budget Responsibility tells us to expect UK growth at 3.8 per cent this year and 1.8 per cent next year despite the crippling cost-of-living surge and the fear factor of war in Ukraine. In the Chancellor’s spring statement, those numbers came with this caveat: ‘The OBR stressed the “significant uncertainty” surrounding its forecasts. It notes… there is around a one in five chance that GDP will fall in 2022 or 2023.’
And there’s the rub of the pants, as it were: rather than taking comfort from a consensual ‘V-shaped post-pandemic recovery’ narrative, we should be asking what the percentage chance is that the consensus will turn out to be spectacularly wrong – as it did in the case of 2008’s ‘great recession’, when most economists failed to spot a distinct droop in Y-front sales.
But of course we should be watching bond markets as well: US markets are currently flashing (for the first time since 2006) a well-recognised recession warning in the form of an inversion of the yield curve on US Treasury bonds. That means some short-term paper is offering higher yields than long-term paper, which is contrary to the norm and a lot less fun to write about than underwear, but has correctly predicted every recession in the modern era.
Goldman Sachs sees the risk of a US recession in the next year as ‘broadly in line with the 20-35 per cent odds currently implied by… the yield curve’. If America goes that way, so most likely will we – and a key factor on both sides will be energy prices. The National Institute of Economic and Social Research said last month that the UK could experience a shallow recession in the second half of this year (after relatively strong growth in the first half, that is) if oil prices stick above $120 a barrel and natural gas prices stay high. A one in five chance? One in three? The odds are surely narrowing: call me a pessimist, but I can’t remember the last time I actually went inside a Calvin Klein store and bought a pair.
A small cheer for NatWest
The return of NatWest to the private sector is cause, I suppose, for a small celebration. A £1.2 billion buyback of shares has reduced the Treasury’s stake in the bank that used to call itself RBS from 50.6 per cent (having stood above 80 per cent after the 2008 bailout) to 48.1 per cent. The sale at 220.5p per share was far below the Treasury’s break-even target of 400p, but never mind: the 14-year trauma is effectively over; the bank survives under the sensible management of chief executive Alison Rose, and the lessons of over-expansion, delusional risk-raking and weak boardroom governance have been learned.
Or so we hope. Alongside NatWest’s news come reports that Barclays has had to delay a share buyback of its own while it pays £450 million to compensate US clients for a trading error in its ‘structured products’ business. Whatever that means, it’s just one more nine-digit slip-up in a sector that (it’s safer to assume) is perpetually accident-prone and likely to underperform expectations. For shareholders, no hope of recovery to pre-crash values; for customers, mediocre online service failing to compensate for shrunken branch networks; for the challenger banks on which so much hope was pinned over the past decade, too much market inertia, too many regulatory hurdles.
The sentiment NatWest’s renaissance should really provoke is this. How could those proud, pompous, cautious high-street banking institutions of the post-war era have fallen so far and – for believers in the Schumpeterian theory of creative destruction – why has nothing significantly better emerged from the ruins of 2008?
Right and wrong foreigners
National Grid, the UK’s major operator of electricity and gas transmission, has sold a 60 per cent stake in its gas pipeline networks for £4 billion to Macquarie, the Australian infrastructure investor, in combination with a public-sector pension fund manager from British Columbia in Canada. In doing so, it has earned a rebuke from the GMB trade union for ‘flogging more of the national silver’ to foreigners. Meanwhile, Downing Street’s new passion for nuclear power brings an announcement that the government (having previously put up only a token £100 million) will take a 20 per cent stake in the £20 billion Sizewell C plant, pour encourager les autres, alongside the 20 per cent committed by EDF of France. But even with this endorsement, the identity of ‘les autres’ who will pick up the other 60 per cent remains a big, tricky question.
China’s state-directed General Nuclear Power Group is clearly persona non grata. Sovereign wealth from the Gulf is tainted by human rights issues and the P&O Ferries scandal – and anyway prefers real-estate trophies. Investors who might back any multi-billion UK engineering project are in fact far more likely to be Australian and Canadian pension funds, or specialist European and US funds – and much less likely to be our own City institutions, which talk the talk on infrastructure investment these days but would still rather put their long-term money into the familiar territory of commercial property and gilts.
So, as in other spheres of modern life, it will always be a matter of attracting the right kind of rich foreigners while cold--shouldering the wrong’uns. All of which doubles the difficulty of securing our energy supplies against foreign interference. It’s a complicated business.