The economy has behaved a bit like David Blaine. It’s stayed up much longer than anyone expected and doesn’t appear to have got any thinner. If anything, it seems to have grown a little fatter throughout its recent ordeal.
Also not unlike Blaine, we’ve begun to wonder if it’s all an illusion. Chancellor Gordon Brown will be stopping tourists on the pavement outside the Treasury soon to show them how he can push a cigarette through a &£1 coin.
I have to say that I am impressed. The UK economy grew by 0.6 per cent in the third quarter of 2003, meaning that Brown is likely to achieve his forecast growth target of between two per cent and 2.5 per cent for this year.
In April, when he made his prediction, it was greeted with as much scepticism as a doctor’s prognosis for a human body lasting 44 days in a Perspex box on water rations. Well, Brown looks like doing it – and he’s looking fit.
There is a suggestion of cheating in Brown’s figures. All the economic growth is coming from the retail sector, while industrial output is as flat as Blaine’s verbal delivery.
This level of consumer inflation is worrying the Bank of England’s monetary policy committee. We can look forward to interest-rate rises to dissuade us from fuelling the high street boom with ever-higher levels of borrowing.
And Brown may have his limits as an escapologist. It appears he may not be able to adhere to his “golden rule”, on which his reputation for prudence has been built for the past six years. As public expenditure rises and tax receipts continue to disappoint, the Chancellor looks like he’ll have to break his self-imposed discipline of never borrowing more than he invests over the economic cycle.
But this is, perhaps, to be unduly critical. It is also to be unduly doubtful of his talents as a prestidigitator. It’s a bit like peering up his sleeve, or walking round the back of his set when he appears to have sawn Tony Blair in half.
The real question is: how does the retail economy stay up without any visible means of support? The obvious answer is that consumers are continuing to spend – and to borrow in order to do so. It has to be done on borrowings, because corporate earnings outside the service sector are flat.
Other than retail, the business story typically continues to be one of contraction and downsizing. After something of a bullish, late-summer rally in the equities markets, corporate performance across all non-service sectors have returned to their wobbly characteristics; at least as far as share prices are concerned.
But it appears that those of us who remain in gainful employment, bucked by the apparently inexorable rises in our property prices, are continuing to pour our cash – and the cash of anyone who will lend us more of it – into the retail sector.
This illusion of prosperity may yet deliver for Brown. If we were to reach a significant upswing in overall economic growth some time during the course of next year, then it may well be that this irrational period of shopping exuberance will have bridged the potential chasm into which the UK economy may otherwise have fallen.
Yet that doesn’t explain why this apparent irrationality exists. We have no right to a feel-good factor. Our pensions and other equity-linked instruments aren’t delivering. Interest rates look like rising. People everywhere are being made redundant. But the tills keep ringing.
I have one possible explanation, other than the contention – rather hollow, I think – that so long as our houses are worth more than our mortgage repayments we will continue to spend tomorrow’s money. Excuse me if this sounds a little fey, but it may be that the reason the retail sector is in such robust good health is that the UK has very good retailers. Just as any old fool can make money in rising markets – and, frankly, they did during the protracted bull years – it may be the case that truly sound quality can hold up the market during tough times.
A decade ago, Sir Rick Greenbury was still choosing the fashion lines at Marks & Spencer. These days, we have Philip Green’s Arcadia, running knee-tremblingly successful outlets such as Dorothy Perkins and Top Shop, turning in nearly doubled full-year operating profits, on a market capitalisation he has more than doubled at about &£2bn.
We have Belinda Earl presiding over the fight for control of Debenhams, which she has converted into a hotly desired corporate property. And we have Tom Singh, whose family has built New Look into a &£700m combine that attracts the City’s attention when it isn’t directed at Debenhams.
People like Green are credited with a vice-like grip over the supply chain. But it has to be said that this generation of retail entrepreneurs also know what consumers want and respond to that demand. Simple really.
It may be that they have as much to do with keeping Britain shopping, during adverse economic conditions, as have low interest rates and any magic that the Chancellor has managed to perform. Brown has had little to do with the phenomenon of the rise of these new British retailers. But he might like to consider giving them peerages when he becomes Prime Minister.
George Pitcher is a partner at communications management consultancy Luther Pendragon