Why we should judge economies as we do hedge funds

Is it reasonable to say the UK is out of recession simply because GDP has risen by 0.1%? Of course it isn’t.

Sure, a little rise is good. But the fact remains that we have lost 5.9% of our GDP in the last 18 months or so. Given that, surely Gordon Brown shouldn’t be able to claim that he has seen us through recession until he’s somehow got us back to where we were in the summer of 2007?

That, at least, is the view of retired fund manager Nick Reid, who has been working himself up into a fury on my email about the different ways in which success is judged. Imagine, he says, if a hedge fund behaved in the same way – fell dramatically in one year, rose a tiny bit in the next year, then went about the place announcing its manager’s cleverness to all and sundry. It would be laughed out of Mayfair. And it certainly wouldn’t be seeing much in the way of performance fees.

He’s right, of course. We shouldn’t be looking at one quarter’s number at all, but at sustainable recovery – and at when we hit our high-water mark. However, there’s a big problem in all this for Gordon “I saved Britain” Brown: use any sensible definition of ’emerging from recession’ and it is hard to see when and how we will.

Look at today’s FT. Here we learn that retailers have just seen the worst January sales growth in 15 years.  We can also see that estate agents have reported “the first drop in potential buyers” in more than a year. Flick through, and we learn that the UK banks feel that they are not yet able to “contemplate life without government support”: if anyone makes them pay back any of their guaranteed loans, they will have to cut mortgage lending and shove up rates. So much for the recovery in the banking sector.

Then we see that 23% more people applied for university places this year than last year, with an interestingly large percentage of those applications being from older people. I wouldn’t have thought they’d all be so interested in academia if they thought they had a reasonable chance of getting a job (or a new job in the case of the older applicants), would you?
There is no good news here. Look at the UK as you might a hedge fund and it’s clear we’ll be in what most of us would consider to be a recession for a long, long time to come.