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Investment view

When assessing the market&#39s response to last week&#39s interest rate cut, the word “underwhelmed” springs to mind. Shares were already struggling, with good days looking suspiciously like bears closing out profitable positions. Any hopes that cheaper money might bring the buyers out were swiftly dashed. Of course, manufacturing output figures published the following day gave a clue as to why the MPC acted as it did. Output for 2002 as a whole was down by 4 per cent – the worst performance in a decade. It is not just the City that is in recession.

Just in case you are of a mind to ignore what happens in the manufacturing sector on the basis that we are now a service-based economy, let me warn you that one side-effect could well be a downward revision to UK economic growth. Already, analysts are pencilling in weaker numbers, leading many to the view that perhaps Gordon Brown is not so clever after all. Luck should never be dismissed in politics – particularly in the office of Chancellor of the Exchequer. If, indeed, the economy is slowing, then the tax rises due next April could have a last-straw feel about them.

That may be no bad thing. If 2000 and 2001 were about the unwinding of the overheated position built up in the second half of the 1990s, then 2002 was more to do with investors&#39 concerns over the direction of major economies and consequences of geo-political risk. Throughout last year, the official line was that the UK is immune to any creeping influence from a slowdown in America. The market, on the other hand, has been saying that it was not so sure. As recession gripped isolated sectors, it was hard not to wonder if one&#39s assessment was not influenced by personal experience. Perhaps the effect of the downturn in the market is about to invade other areas.

Last week saw a sharp contraction in demand for more expensive property. According to Country Life, the proportion of enquiries for the top end of the housing market – homes costing £1.5m or more – suffered a slump of significant proportions. Apparently, as recently as the second quarter of last year, more than 57 per cent of the interest shown through its online property service was for these properties. By the fourth quarter, enquiries had declined to little more than 14 per cent of the total. Moreover, the most popular price bracket had fallen from £2m to just £750,000. This is not just an absence of bonuses in the Square Mile. Perhaps this remains a rich man&#39s recession but I would not bank on it remaining so.

Back in the early 1990s, when we last travelled through recessionary times, there were many who found it difficult to equate poor economic data with a booming stockmarket. Yet that was the position. Nor were true market professionals surprised. Share prices anticipate events as well as reflect current circumstances. Then, investors were looking forward to the recovery that seemed certain to arrive. It would not surprise me if we had a re-run of this scenario just a decade later.

One difference that exists, though, will be the spending commitments entered into by this Government and the knowledge that they are pretty much half way through their second term of office. They may not always have the luxury of a divided and weak opposition to allow them to paper over the cracks of service non-delivery. Spending on services requires more taxation or higher borrowing but one consequence of recessionary times is that the tax take declines. Overall, I am becoming more optimistic for the market with each piece of economic bad news but I will still be closely watching what the Chancellor does and continuing to keep an eye out for developments in Iraq.

According to a study carried out in Sweden, mobile phones really can damage your brain. I received my first mobile back in the mid 1980s when they were bulky and batteries lasted for barely a phone call. They were rarities then. These days everyone, from primary school children through to grannies, carry and use them in the most unlikely of places. My guess is that, even if proved harmful, mobile phones are now so much a part of contemporary culture that people will be unwilling to give them up. Instead, a growth in the use of hands-free kit, which allows people to walk down the street looking as though they are talking to themselves, seems likely. What is society coming to?

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