The Story Unfolds

Some quotes: "There are senior people in Washington who are now saying that talk of ‘Depression 2’ was greatly exaggerated" – Prof Neil Ferguson, Economic Historian at Oxford University speaking on Channel 4 News on Sunday 22nd March.

"RPI Inflation at zero percent and CPI inflation RISING to 3.2% in February – in both cases this is much higher than people were expecting. Somebody somewhere got their sums wrong." – Andrew Wilson, Economics Editor, Sky News commenting on today’s inflation figures.

Well, sorry guys, but it was so predictable that anyone who has been following Schezzer will have known what to expect.

We now have Mervyn King saying today that "The UK cannot afford a further fiscal stimulus" – too right!

Whoever did those sums back in November was in a serious state of panic. Now we have to put up with consequences in terms of rising inflation for years to come.

So what’s next?

Well, don’t expect inflation to accelerate off the map this year – it doesn’t work like that. But don’t believe the doomsters and expect deflation either. The numbers may be such that the March RPI rate could well show a small year-on-year decline but expect the CPI to continue to edge upwards. The economy has been over-stimulated because the government has lost track of the extent to which the New Economy – ie the digital economy – drives things these days.

This recession has marked a "shake out" between the old, 20th Century, production-focussed economy and the new, 21st Century, demand-led economy. In my view, the new economy will actually be better for Britain than the old economy. It is an economy where, as a result of our inherent set of skills, we have a competitive advantage over many other countries. But more of that another time.

The key point is that, unlike in the pre-digital, production era, services of all kinds can now be packaged and sold around the globe instantly. When I learned economics at school I was told "services cannot be exported – you can’t export hair-cutting, for example". Well, try telling that to Toni & Guy.

Through successful franchising, Britain can, if it wishes, export its skills in the service industries all around the globe and use the digital economy to design and manage every aspect of the franchisee’s activity. All it takes is imagination, creativity and entrepreneurial talent – and Britain has all of those in spades.

The trick will be to focus on exporting to the developing nations, especially the Pacific Rim. So if you have any contacts in Australia – give them a call!

My view is that the worst of the recession is now technically over and things will start to recover – and much more quickly than people expect. But some things, like Woolworths, are lost forever. They were part of the previous economic era.

So, expect the economy to "officially" be bumping along the bottom for the next 3 to 6 months but after that things will recover.

And the new world will be better than the old in many respects.

The one area that will hurt for years though is the money sunk into the banks. That will take a generation (25 years) to put right.

My advice – take out a fixed interest rate loan right now – for as much as they’ll let you have. When inflation starts to take off you will see the value of the debt shrink in real terms surprisingly quickly.

So, Q1 2009 will turn out to be the low point, recovery begins in Q2 and things will gradually get stronger through the rest of 2009 and into 2010. Not exactly a boom but certainly stability will return. You can count on it.