New Year Gloom- (05.01.03)

Why was Tony Blair quite so gloomy in his new year message to Britain. Accepting that current world events may appear bad to the person who has to deal with them, a potential war on Iraq is likely to be rather limited and is hardly an unusual feature of world history. This isn't really a problem directly for Britain either, the Americans will make the choice on this conflict and accept the burden of responsibility.

Economically it is also hard to agree that Britain currently faces an "unprecedented range of difficult .... problems". Mr Blair was warning that we may have forgotten what tough times are like, based on current economic uncertainty. I doubt this is really the case. Most consumers are well aware of uncertainty and factor this into their decision making. As soon as interest rates start to increase, so will saving for the future. This cause a slowdown in consumer spending, but this is likely to be a short term adjustment than anything greater. The impact of a world slowdown on this can also be overblown.

The most likely scenario would seem to be that 2003 will see strong economic growth, allowing a managed realignment of growth in consumer spending and house prices with the economy in general. There may be risks of a worse scenario, but they would not be catastrophic.