Martin Flanagan: Optimists ready to joust with doomsayers

Published on Thursday 2 February 2012 00:00

TRYING to divine whether Britain will go back into recession in the current quarter, you feel you may as well pluck the entrails from a bird, throw them on the coals and speak in Delphic tongues to an uncomprehending sky.

It looks as worth a shot as trying to weigh and extrapolate the recent flurry of figures that appear to be switching about so bewilderingly.

The odds on a double-dip recession narrowed sharply when it was revealed recently that GDP contracted 0.2 per cent in the final quarter of an economically bleak 2011.

Manufacturing played its part in the gathering gloom, putting in its worst trading shift in over two years as exports to the financially floundering eurozone, in particular, hit the skids.

The CBI added its two penn’orth of Eeyore a week ago by saying the tough conditions meant Scottish manufacturers, in particular, were sharply scaling back on investment plans across the board, from training to IT and buildings. Clutching at straws, the best the more bullish commentators could come up with at the time was that manufacturing didn’t matter so much to the outcome as it only accounted for about 12 per cent of the economy.

But now manufacturing has bounced back, with yesterday’s data showing that the sector returned to growth in January. The Markit/Cips UK manufacturing purchasing managers’ index showed output rising at its fastest in ten months, while orders grew for the first time in seven months.

Firms are reporting better exports to the likes of Brazil, China and the United States, picking up the slack from withering demand in mainland Europe.

In short, there now looks to be a sporting chance that heavy industry will return to growth in the first quarter of 2012. It is not a case of happy days are here again but certainly all the hand‑wringing about the apparent inevitability of a new recession now looks a bit premature.

Stagnation, or recession? It looks to be a close‑run thing between now and spring. Whether Britain can avoid contraction for the second consecutive quarter will swing on how the far bigger services sector performs, not least the consumer‑mood-dependent retail industry.

Another positive is that it looks virtually certain the Bank of England is to pump more money into the economy shortly as part of a yet-again-beefed-up quantitative easing programme.

It would overcook it to say that December now looks as if it represented the dark hour before the dawn for manufacturers. But, at least the latest unexpectedly cheering data suggests the economic optimists can give the double-dip jeremiahs a run for their money.

Lloyds management rethink is crucial

LESS is more. That is what investors will hope is the result of the streamlining of the Lloyds Banking Group management structure, designed to relieve pressure on its chief executive Antonio Horta‑Osorio. The revamp, which directly addresses the problem of the sick leave Horta‑Osorio had to take late last year because of exhaustion and insomnia, looks to have a secondary objective as well.

By having ten executives reporting to him, down from 14 previously, the hope must be to get the boss away from some of the day-to-day operational management and allow him to focus on the bigger picture for the partly state-owned Lloyds.

This is wise. The bank put together a massive remuneration package to acquire a banking strategist, not a tactician.

Meanwhile, we also shouldn’t underestimate the City’s interest in events moving on in the group’s wholesale arm, lending to large corporates and the like.

Truett Tate, the divisional head and a lieutenant of former chief executive Eric Daniels, is to retire and an internal and external hunt is on for a successor.

What is the nearest thing Lloyds has to an investment banking business can often be overlooked because the group is rightly regarded as the most retail-centric of the British banks, with its dominance in current accounts and mortgages.

But wholesale accounted for over a quarter of total income at Lloyds, contributing £2.74 billion, in the 2010 results. That is hardly a tack‑on business arm, but a profitable counterweight to the fortunes of the high street operation. Its smooth management is therefore important.

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