Outlook for '99: Tough year, bright future

TALK to business leaders around the country and you will find mixed feelings about the commercial prospects for 1999.

Manufacturers in particular will have a difficult time, with a recession in their sector looking increasingly likely. But the overall outlook for the economy is not as bad as some commentators have been making out.

I agree that the Chancellor's forecast of between 1 and 1.5 per cent growth looks a little optimistic, but the CBI's prediction of 0.7 per cent is not so hugely different.

Both forecasts suggest very slow growth before things pick up as we approach the new millennium. That means we should avoid a technical recession (two consecutive quarters of negative growth).

In Britain, with our never-ending cycles of boom and bust, we are all too familiar with downturns in the economy. This particular downturn should only strengthen our resolve to bring about the more stable and prosperous Britain that we all want to see.

So while tackling our short-term difficulties is important, it is vital to remember that 1999 will be a year in which we make key decisions about the way Britain does business in the 21st century. That is why I believe it is crucial for business leaders and politicians to stay focused on the bigger, long-term picture.

The first big issue on most people's minds will be the euro. We are now entering uncharted waters and nobody can be precisely sure of the outcome. Perhaps a multi-speed Europe will emerge with looser links, allowing countries to adjust at their own pace. Only time will tell.

But we will soon see if one interest rate works for 11 countries, as well as the effects of Britain's decision to stay out. I expect those effects to be most keenly felt by the business community. All this should contribute to a more grown-up debate about the single currency.

Then there is the more general question of how the European Union will develop.

Will it be an entrepreneurial Europe with labour market flexibility and high growth?

Or will we have to settle for low growth, high taxes, high social spending and lots of regulation?

Next year could be a make or break year for the UK in Europe: we will either become more or less involved. I remain convinced that it is crucial for Britain to play a major role in shaping the final outcome.

What we must recognise is that Europe is not a train going to a specific destination. It is a journey, and only if you are on that journey do you get a say on the direction that should be taken.

Moreover standing on the sidelines, watching others make decisions that affect us, will achieve nothing. The UK is an island, permanently anchored to continental Europe. There is no opportunity to float off elsewhere. So Europe is the only game in town. Play it and win, play it and lose. But play it you must.

Public spending will be another key long-term issue for 1999. Improvements to health care, education and transport infrastructure are vital to UK competitiveness. We cannot continue to close our eyes and hope that long- term problems like rising demand and under-investment will go away.

This government has already made plans to increase public investment and those plans remain affordable, despite the slowdown in economic growth. In fact they will have a helpful expansionary effect on the economy.

But if we are to afford more long-term improvements, some tough decisions need to be made. If we are to avoid raising taxes, we must control social security and other spending or begin to introduce more imaginative private sector involvement.

Of course the key to achieving the ambition of modern public services is the ability to generate prosperity. And during 1999 there will be a range of issues that affect the ability of UK companies to compete in international markets.

The strength of sterling will be crucial to manufacturers. For this reason the CBI will be looking for interest rates to continue falling. Although the exact timing of cuts is open to question, we hope to see the cost of borrowing down to around 5.5 per cent by the middle of the year.

But no one should expect a fall in the value of the pound to instantly solve our export problems. Firms may now find markets taken over by Asian companies. It took a long time to build up orders and it will now take time to get them back. Some companies may need to raise their game.

Many people are talking about the need to improve UK productivity, and that is all well and good, but action speaks louder than words. For me productivity means more than just greater efficiency. We need to be creating new products and services that are of higher value to customers. If we do not innovate, we will be unable to retain market share.

Essential to that process of innovation is the entrepreneur. It is still true that many people in the UK are suspicious of those who are successful in business. There seems to be a macabre delight in highlighting failure and toppling business heroes from their pedestals.

I believe we need more winners in the UK and to make Britain friendlier to new and growing businesses. Creating a culture of winners is another long-term issue that the UK still needs to address if it is to be competitive in the next century.

So my new year message to business leaders and politicians is modernise for the millennium. Despite a 1999 that could he dominated by slow economic growth, this is the way to a prosperous and successful society.