Frost should know better than to talk of a recession which may not be

Jul 8 2008 By Nevill Boyd Maunsell

David Frost really should know better.

It is all very well for brokers’ boys and even respected pundits like Roger Bootle to drop the dread “R” word and be rewarded with an easy headline.

But Mr Frost runs the British Chambers of Commerce. When he raised the prospect of “serious risk” of recession on the BBC Today programme yesterday morning he was discussing the BCC’s heavyweight quarterly survey based on detailed replies from nearly 5,000 of its member companies. Its sheer size, thoroughness and pedigree give it clout that none of the others can match.

Now the results this time were not cheery – happily in some important respects less depressing in the West Midlands than elsewhere. They amounted to a picture of slowing growth, not decline, despite a sprinkling of minuses in places where they haven’t been since the recession of the early 90s.

All in all, though, these findings do not amount to a recession – an economy as a whole shrinking rather than growing.

To be fair, Mr Frost did not say they did. He was talking about conversations with his members, whose mood has changed severely for the worse in the last three weeks. They are suffering an acute fit of jitters.

You can see why. As their sales are coming under pressure, their ability to make price increases stick crumbles. Increasingly, they will have to take relentlessly rising energy and commodity prices on the chin – out of their profit margins. Meantime, this survey does contain the first tell-tale signs of banks crunching the credit they extend to companies in the real, non-financial, economy.

It is enough to make anyone feel disinclined to get up in the morning. But it does not amount to a recession – not unless these corporate titans and pushy entrepreneurs start battening down hatches ahead of what they fear is an inevitable recession.

Hence yesterday’s warning from Peter Mathews at the Black Country Chamber that we – by which he presumably means Mr Frost – should have a care not to talk ourselves into a recession. Mr Mathews, incidentally, took a rosy view of his own Chamber’s contribution to the BCC survey. This is one of those occasions when you can look at a half-full/half-empty glass either way.

Applaud Mr Frost, by all means, in his efforts to kill off any thoughts Chancellor Darling may have of piling on new business taxes – but not at the cost of scaring his own members into self-destructive behaviour.

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Now here is one house-builder that will still be around when the dust settles. To start with yesterday, news that Persimmon has axed 1,100 salaried jobs this year and plans to part with another 900 temporary staff, echoed the 1,000 cuts at Barratt and 900 at Taylor Wimpey.

Then somebody spotted the difference and the shares started going up instead of down. Persimmon said that 80 per cent of its land bank was bought before 2007 – in other words at pre-2007 prices.

That will limit any write-downs that have to be made on it. Conceivably there won’t be any. And once land prices fall far enough, Persimmon has £490 million of unused bank facilities and a lightly borrowed balance sheet.