Specifically, zombie companies. The FT says...
Link)The trouble here is that there has been no "reset". Failed companies, eg companies with too much debt to trade profitably, should go out of business and make room for new companies to be set up and grow. However the BoE has kept interest rates so ridiculously low, and sprayed QE money into the economy, and behind the scenes has put pressure on the commercial banks to exercise "forbearance" - all to keep failed companies from dying. So these organisations lurch around, dead in all but name, and stop the "green shoots" from sprouting. Roughly three out of 10 companies in the UK are now making a loss; more than during the recession of the early 1990s. But the number of insolvencies this time around is far lower. Though the number of liquidations shot up in 2008, they have fallen since and the BoE expects 16,800 companies to close their doors this year – substantially lower than the almost 25,000 that went out of business during the early 1990s. Even during the peak of the 2008-09 recession, the number of liquidations was less than 20,000 a year. (
This isn't totally bad. It keeps unemployment down, and most people would call that a good thing.
But actually, it's not. Given the choice would you prefer a) to have a job with a permanently failing company which cuts your pay and/or your hours every year forever, or b) have a short period of unemployment followed by a job in a new company which increases your pay every year because it's thriving.
At the moment we are in situation "a". The job stats look good, but look even slightly beneath the surface and you will find the hardship of falling real incomes and ever increasing debt.
In his press conference yesterday Sir Merv "called" the next dip. We've just come out of the second dip of our double-dip recession and Merv is already preparing us for the next. He said:
"Output growth is likely to fall back sharply in Q4 as the boost from the Olympics in the summer is reversed – indeed output may shrink a little this quarter. [...] Despite a resilient labour market– as we saw again in today’s figures – the economy has barely grown over the past two years."And this from a man whose job includes talking up the economy!
Oh, and inflation, after a brief lull has now taken off again. But what do you expect when you print four hundred and twelve billion pounds. (Economists generally seem to be including the coupon grab in the QE total. So it's an official £375bn plus the coupons at £37bn making a total of £412bn.)
See the previous post for the Great Coupon Robbery.