The UK must Keep Calm and Carry On in the wake of so-called doom and gloom in the global financial markets, politicians, economists and businesspeople have urged today.
On Tuesday the Baltic Dry Index, which measures the cost of raw materials around the world, fell to a record low. This is often seen as a precursor to economic meltdown as the last time the index plummeted was in 2008 before the recession.
But today Clayton Euro Risk chief executive Tony Ward reiterated his view that the markets could be overreacting, while economists from both Pantheon Macroeconomics and Capital Economics stressed there is nothing to panic about.
However speaking on the BBC’s The Daily Politics earlier today, former Conservative MP Alan Duncan and Labour MP Stephen Kinnock both admitted they were concerned about the impact of crashing oil prices on the UK economy, with Kinnock claiming the UK is “imbalanced” and lacks “quality” growth.
While the consensus is the UK is reasonably protected from a global downturn – the London property market is seen as a safe haven in times of crisis – areas that rely on car manufacturing in the Midlands are expected to have a tougher time due to loss of Chinese trade.
Ward said: “It looks doom and gloom and cataclysmic but there’s always a risk the markets are overreacting: It’s what they do. They see a steep correction and negative sentiment and trade on that sentiment.
“The International Monetary Fund is still reasonably positive for the UK globally you have to say that despite all their news investors have to put their money to work somewhere and I would still say the UK is not a bad place to be.
“It would be very tempting to say we’re going to have a crash. I’m saying we’re not; that’s not to say we don’t have problems.”
Ward raised concerns about debt and quantitative easing underpinning growth, but on the flipside he added the UK has low inflation, low unemployment and positive GDP.
Andrew Kenningham, senior global economist at Capital Economics, wasn’t swayed by the Baltic Dry Index. He said: “Some believe the index has almost uncanny powers to predict future slumps in trade and even global recessions.
“However, we don’t see the latest fall as such a big deal.
“Both world trade growth and the BDI have been at very low levels for several years now. In any case, we think there are better ways to assess the strength of the world economy.”
Samuel Tombs, Panetheon Macroeconomics chief UK economist, reckoned the UK is in a good position to weather a storm and even didn’t rule out the Bank of England raising the base rate in the second quarter of 2016.
He said: “If the index is signifying a global economic slowdown UK exports are going to struggle but in general I think it reflects weaker demand for commodities and weaker demand for oil. But that’s not something that we export ourselves so the drop isn’t anything to worry about.
“The UK is very well insulated in a downturn from commodity producing economies. Turmoil in the markets might mean wealthy overseas people withdraw from their market and put it in safe havens in the UK.
“It could reduce mortgage rates as gilt yields fall and other market interest rates decline as people will deem it less likely that the Bank of England will reduce mortgage rates this year.”
The economists said a slowdown in the labour market with people losing their jobs would signify a downturn rather than the index.
While Ward felt the UK economy will pull through he was worried about the impact scare stories will have on consumer confidence.
He added: “Consumer confidence in the economy is very important in terms of future sentiment so we can’t ignore all this stuff on the press.
“Some people could think ‘let’s stop spending money’.
“These things have a habit of getting ahead of steam. There’s a lot of panic setting in in markets – the key is to stay calm.”