Financial expert predicts hard times in the UK

Nick Parsons, head of markets strategy Europe for National Australia Bank, told Yorkshire firms that Britain's banks fundamentally had less money than before the crash, despite the fiscal stimulus, and warned the economy could shrink again even if the country is recovering.

In a gloomy address at First Friday, a Wakefield district development agency event, Mr Parsons forecast more problems because of Britain's failure to recapture the growth level it saw before the recession.

"We have seen about 800,000 job losses over the course of the last two years. Our central forecast is that over the course of the next five years that may reduced by around 300,000 but there will still be a core increase in unemployment of around 500,000 and it is very difficult to see how we are going to make any headway into that total."

Britain faces growth of just under one per cent this year and then of 2.25 per cent next year, according to NAB, which also owns Clydesdale Bank. The average level of growth before the recession was 2.75 per cent.

"We think the UK economy this year is going to be the worst-performing major economy in the world", Mr Parsons said.

He also warned that the economy – which grew by 0.3 per cent in the final quarter of 2009 – could still shrink again as part of a longer-term recovery.

Mr Parsons stressed that no predictions could be certain but also said there was little sign of high street banks lending as much as they did before the financial crisis despite the impact of the credit guarantee system, the special liquidity scheme and quantitative easing, which is effectively printing money. The UK banking system is short of 319bn, according to Bank of England figures, he said.

"If you are asking why UK banks are not lending more money it is because they have not got it. It does not exist."

Years of individual and Government excess meant whoever won the General Election had to come up with a more coherent plan to reduce the fiscal deficit, he said. "We have more debt per household than any country in the history of the world."

Mr Parsons went on: "We need a credible deficit reduction plan. At the moment it amounts to crossing your fingers and hoping for growth. If you don't get the deficit down then UK interest rates will be close to those of Greece. Whichever way you look at it we are screwed."

Now Britain is seeing a "behavioural shift" in which people are trying to save a little more and spend less, which has the effect of reducing total demand.