square mile of fear, The

Spectator, The, Nov 7, 1998 by Trefgarne, George

The City has helped turn London into an urban tiger. Douglas McWilliams of the Centre for Economic and Business Research says that London's economy has been growing at about 5 per cent a year in the 1990s, twice the rate of the rest of the country and faster than anywhere in Europe apart from Ireland. It is now bigger than Austria, Sweden and Denmark. At the heart of Cool Britannia, as ever, has been Swinging London.

Mr McWilliams has set up an economic model and says the fall in the FTSE 100 of leading shares from its peak of 6,179 in July to about 5,500 will lead to about 3,000 City job losses. But he believes things are now on a knife edge. If the index falls another 1,000 points a further 20,000 jobs will be lost in the City and another 40,000 throughout London. `There's a very hefty dependence in London on the City, whether it's hairdressers or whatever,' says Mr McWilliams. If such a fall occurs, he expects house prices to drop 6 per cent and even a repeat of 1987, when Porsche sales plunged by 80 per cent.

We should not, however, work ourselves into a panic. Some of the old hands, experiencing the third or fourth bear market of their lifetime, take a sanguine view. One such is Stephen Lewis, chief economist at Monument Derivatives. After the 1987 crash he correctly forecast that 50,000 jobs would be lost. He says, 'I don't think it will be as many, because in 1987 there was also the technological change following Big Bang.'

Mr Lewis says people forget how bad things were in 1974. `It was not just the markets disintegrating, but the whole country,' he says. `The world was coming apart at the seams. There was even talk of a military coup (led by Mountbatten) to unseat the Labour government. If Peter Wright is to be believed in his book Spycatcher, that was not beyond the bounds of possibility. Anyway, we survived all that.'

At the risk of tempting fate, the situation may not be as serious as it seems. In the last two weeks the stock market has stabilised and risen about 20 per cent, recovering about a third of its losses. Interest rates on both sides of the Atlantic are on the way down, not up; and unlike in previous crises, such as the recession of the early 1990s or the crash of 1929, we do not have a fixed exchange rate. Nor should we forget that the 1980s reversed the decline of the British economy, so it is now the second largest in Europe. There are still jobs to be found in the City. Kate Dereham of the headhunters Sheffield-Haworth said, `We are winning new recruitment mandates as a lot of banks are taking the opportunity to upgrade their staff. What we are more worried about is possible hiring freezes next year.' A senior executive from a Wall Street bank with operations in London summed up current sentiment, 'Look,' he said, `we don't yet know where we go from here. If this market goes to hell in a handbasket, then of course we'd be playing a whole different ball game and there would be layoffs. But we're not there yet.'

So this weekend, if you meet a once cocky soul newly out of work, unshaven, and threatening to write a novel, say how sorry you are and that something will turn up soon. However, if markets take a turn for the worse - if, for instance, the launch of the euro gums up trading totally, or Latin America collapses, we would all be caught in the City's maelstrom. Then there really would be nothing for it - the hereditary peers would have to launch a coup.