x Abu Dhabi, UAESunday 23 July 2017

Without a paddle, the UK rides right into the gloom

If the British economy is anything to go by, Gordon Brown "saved" it in much the same way the British and French "saved" Poland in 1939.

Remember how Gordon Brown "saved the world" last September with his intervention in the British banking meltdown? Well, he's saving it again next month, when London plays host to the economic summit of the Group of 20 leading nations, the G20. Let's hope the world has the gratitude to stay saved this time. If the British economy is anything to go by, Mr Brown "saved" it in much the same way the British and French "saved" Poland in 1939 - ie, they inadvertently set in train a series of events, which led to its total and utter destruction. In particular, the UK banking industry resembles Warsaw in May 1945, in the devastation and destruction that has been brought on it in the past six months.

There is not a single edifice left standing amid the ruins of the UK's financial services-driven economy. Royal Bank of Scotland and HBOS have been ignominiously nationalised, at a cost to the UK taxpayer that will be borne by the children and grandchildren of the nationalisers. Lloyds has been crippled by the deal that "saved" HBOS, and is also on the nationalisation list. Even the two banks that avoided the cold embrace of the men from the Treasury, HSBC and Barclays, are on the casualty list and will be lucky to pull through without radical surgery.

British expats in the UAE often ask, "just how bad is it back home?" A trip to London last week proved to me once again that the economy is very bad indeed - and getting worse. There was even a resurgence of deadly terrorist violence in Northern Ireland, which lent a distinct air of the depressing 1970s to Britain, 2009. Unemployment is at a 12-year high of nearly two million, and forecast to rise to more than three million by the end of 2010; bankruptcies - both personal and corporate - have risen dramatically; economic growth has been thrown into reverse, with the economy forecast to shrink by four per cent this year; the stock market is dying the death of a thousand cuts, with a depressing series of daily reverses outweighing any short-lived "sucker rally".

Property prices are showing a 28 per cent decline over the past year, and one report last week said they might fall a further 55 per cent this year. At that level, millions of mortgages will be below water with their holders stranded in negative-equity land; the pensions industry is in crisis, hit by the stock market collapse, near-zero interest rates and Brown's disastrous early decision to tax dividends in the corporate sector.

The debate is no longer about whether Britain will suffer a 1930s-style depression, but rather about how long it will take to climb out of it. The optimists - few in number these days - hope it will be V-shaped, with a sharp decline followed by a rapid and exuberant recovery. The more gloomy think it will be U-shaped, with the indicators bumping along the bottom awhile before they begin to climb out.

The really shocking development, however, is the emergence of the L-shaped tendency. These Cassandras believe the horizontal leg of that L could last a very long time indeed, and that long-term recovery is unforeseeable. Given that economists regard anything more than five years as long-term, that means Britain is facing year upon year of economic stagnation, with all the social and political woe that involves.

One L-shape adherent wrote ominously in the Financial Times last week that all the evidence showed Britain was only about half way down the vertical of that L. The economy has still not hit bottom, according to these pessimists. Brown and his government will put a brave face on all this at the G20 meeting. This gathering and the British budget that falls in the same month represent his only remaining chances to save his ravaged reputation and, just conceivably, pull out of the car crash facing Labour in the next general election. But the odds on any positive outcome from the G20 are long.

There are already signs of a major policy rift between the US and Europe over the size and immediacy of the fiscal stimulus the world needs to ameliorate the recession, and fears that the meeting will get bogged down in the minutiae of financial regulation. The Americans seem especially unprepared for the meeting, with Barack Obama and his Treasury Secretary, Tim Geithner, distracted by the need to attend one domestic fire after the other. It all augurs badly for Mr Brown in what must be his last big set piece as prime minister.

Nobody believes Mr Brown or Labour can win the next election, but the electorate also shows little expectation that a Conservative government under David Cameron will do any better. Distrust of Labour and fear for the economic future have distilled down into an "ABB" attitude - "Anybody but Brown". If there is any hope for the UK economy, it must lie in the apparently indomitable enthusiasm of the British consumer. Despite official figures that show spending is easing off dramatically after the Christmas binge, shoppers in London last week seemed undeterred. They may not be spending as much, but the shopping habit dies hard.

The huge Westfield Mall in west London - perhaps the worst-timed debut in retailing history when it opened last October in the teeth of the crisis - had a very healthy footfall for a weekday morning when I was there. Further up the road, the fading glitz of Notting Hill - prime Cameron country - was still buzzing in the early evening. In the West End, Selfridges was surprisingly busy for a Thursday lunchtime, but then the store was celebrating its 100th anniversary that day.

It all seemed out of sync with the dire financial news in the headlines each morning. New Yorkers have a new put-down for somebody who is behaving in an extravagant or wasteful fashion - like blowing thousands of bucks on lunch in a smart restaurant, or shopping until they drop, despite the financial crisis. "That's so August," they say, meaning it's the kind of behaviour appropriate before the collapse of Lehman Brothers in September, but now just plain vulgar.

London's retail junkies last week looked "August" indeed. For Gordon Brown and the Labour government, the halcyon days of last summer are gone forever. business@thenational.ae