Market Commentary - Brendan Brown

Brendan Brown, Chief Economist at Mitsubishi UFJ Securities International plc, has shared his views on the current state of the Financial Markets exclusively for Barlow Robbins LLP, “Economic recovery does not proceed at a steady pace even when the underlying momentum is strong.  That is one of the many lessons of economic history.  And so it is no great surprise that the fairly strong global recovery of late 2009 and early 2010 has run on to a period of somewhat slower growth.  The chorus of pessimistic commentators seizing on this lull to announce that a “double dip” may well be near at hand has little substance whether in terms of historical precedent, current evidence, or theory.   

By far the most likely scenario is that business investment, gaining from low capital costs, high profits, and new technology, will lead the recovery process forward.  And already in the US, IT spending is now running at 10% above the peak level of the last cycle.  Labour markets, though, will take a long time to heal – especially given the contraction of once bubble sectors and the amount of physical and human capital eroded in the process.   New high-paid employment creation depends not on the central bankers but on the process of creative destruction involving entrepreneurship, risk-taking, technological revolution, and wage/price flexibility.   

All these dynamics should play out as much in the UK as elsewhere.  The grounds for some pessimism on the UK include the extent of monetary instability which has been created by the Bank of England, the severe downsizing of an over-bloated public sector, and lack of presence in the new knowledge intensive high-technology sectors in which the US, Japan and Germany are so prominent."