This recession has been very different to previous economic downturns. It has been brought about by a fundamental breakdown in the worldwide banking system rather than a failure in, say, UK monetary policy. So, after nearly two years of decline in output, house prices and interest rates, are we at the stage where things are levelling out or is there worse still to come? Do we have a ‘dead cat bounce’ or are there green shoots on the horizon?

The meltdown in our banks’ ability to lend to creditworthy borrowers appears to have been endemic. Nobody saw this coming, least of all the FSA; which is a bit like having a fire service that neither preaches fire safety nor turns out when there is a fire. Clearly things need to change root and branch. The Government, and whatever shape the FSA takes in the future, will need to do more than just rely on the Bank of England’s ‘quantitative easing’ and lowering of interest rates to solve the structural problems we have in our financial services industry.

Like any problem solving exercise, it is essential that we understand what went wrong and how we avoid these kinds of financial ‘tsunamis’ in the future. There will need to be new regulatory rules and laws. Banking can never be allowed to wander into the kinds of unchartered territory it has done ever again. The swagger and arrogance of the few has to be replaced by a sharpness and common sense that has been clearly lacking over the past decade.

How has British business faced these challenges so far? From what we have witnessed, there has been a mixture of ‘life has to go on’ right across to a ‘push the pause button’ response. Tough times bring out the best in those who are the best at running businesses. They are a time to shine. I have been particularly impressed by those clients that take tough times as times to explore and re-think. This is a time to challenge the status quo and think laterally. Brands such as Sainsbury, Tesco and Waitrose in food retailing have seen the downturn as an opportunity to both reposition themselves and expand into new areas like more ‘budget’ label food lines. All three have seen large single or double digit growth as a result.

So, how much more of the tough times do we face ahead? Every economic cycle has a number of individual cycles. For example, unemployment figures will probably continue to rise long after retail sales start to improve or the number of new mortgages rise. I believe that we should start to see a more confident second half of 2009 while 2010 should see confidence building in the housing market as well as employers starting to recruit again. The trouble is that we live in a world that expects instant answers and immediate change; the Sky News syndrome. Economic cycles are not shortened just because we live in an information age; they will take their natural course.

Let’s just hope that we learn lessons from all this rather than just wander through the next economic upturn as if nothing had happened. Whether we call it the New Capitalism or a more ‘caring’ Capitalism, we do need to rid ourselves of the greed that has blighted the past few years. When some bankers are being paid 7 figure salaries, you have to wonder why when you compare what they do with, say, a cancer specialist or a university professor.

John Gateley

Managing Director

May 2009