Robert Peston: Welcome to a special double edition of Asset.tv’s Masterclass with me, Robert Peston. Today we’ll be talking about the outlook for the UK economy and, in the second session, the outlook for the investment industry. Now there’s no more apposite time to be talking about what the future holds for the UK. Today is when the Chancellor will be giving his annual Mansion House speech and, goodness, what a landscape he has to oversee and to comment upon. To state the obvious, we live through extraordinary times, in many ways rather scary times, and we’ve been doing so for the best part of five years now. Who would have thought five years ago that Spain would be a notch away from junk status in terms of its sovereign debt, thought that a Greek general election this coming Sunday could signal the departure of a Eurozone member, Greece, from the currency union, and could be a big event that might either shock the Eurozone into getting its act together or might lead to a rather messy break up.

But it’s not just Europe that concerns us here in the UK at the moment. The outlook all over the world is uncertain and troubling. China, the economy slowing down, hard landing or soft landing? The US, not yet got to grips with an enormous deficit and, of course, here in the UK we’re back in recession, we’re struggling with very large debts in the household sector and in the public sector in particular. As I say, it’s a challenging time.

Now I’m here to pick through what all of this means for investors, in actual fact it’s for all of us whatever we do, with a very distinguished panel of experts. We have Saker Nusseibeh who’s the Chief Executive of Hermes, Jeremy Whitley, the Head of UK and European equities at Aberdeen Asset Management, Guy Monson, the Chief Investment Officer at Sarasin and Antony Barker, on my left, JLT. Now can I just ask, if I can start with you, Saker, what do you think the outlook is at the moment for the Eurozone?

Saker Nusseibeh: It’s uncertain but we’re coming towards the end of it. I mean this is the final act of the crisis of 2008. Europe faces two problems it has to solve; the first problem is what happens to the Monetary Union from here on, and this is now not in the realm of economics, this is the realm of politics ultimately. The solution must be some kind of fiscal union, the price is very high and it means a loss of sovereignty. How they achieve that is still uncertain, if they do not achieve that then a break up that is not structured is on the cards. The second issue which I think we’ll come back when we talk about the UK economy is they have a growth problem which separately from the crisis of the currency they’ve got to deal with.

Robert Peston: Absolutely right. Jeremy, what’s your take on this?

Jeremy Whitley: Indeed, uncertainty, I completely agree with that. I think one thing that is certain, two things really, is that it will cost an enormous amount of money over the next few years, and it will almost guarantee periods of very low growth over the next several years as well, so that’s something we will clearly need across Europe, greater political union. You can’t have a common currency without common political union, as we have seen many times in the past. That will take a number of years. This whole procedure has taken 50 years to get to this stage, I doubt it will unravel in the next few months or so but certainly over the next couple of years we will see a very different style of Europe.

Robert Peston: I mean we have had a whole series of applications of what you might call sticking plaster rather than a fundamental solution. And I mean I don’t know what you think, Guy, but I mean for me what was really shocking is you got an announcement over the weekend that the Eurozone would provide €100bn to the Spanish government to bail out its banks. This was supposed to help Spain, and yet here we are today with the price that Spain is paying to borrow, Spanish bond yields back up at record levels. So in a sense not only has nothing been fixed, actually things look even worse than they did. How long can we go on with these piecemeal solutions in your view?

Guy Monson: I’m a little bit more optimistic. I think it is part of a longer road map. From the first Greek crisis we saw the creation of the EFSF, the semi-permanent funds, then the European stability mechanism which is when completed a fully funded mini firewall if you like, and we’ve seen a bit step over the weekend which was to make a direct injection, albeit through the sovereign but to an agency of the sovereign into the Spanish banks. And I think this reflects a broadly Bundesbank agenda which says we have no problem providing emergency liquidity, we proved that with the huge LTRO schemes, but we do have a big problem at jumping, a mutual assumption of debt ahead of the political criterion that go together, and I think this is a dance of fiscal and monetary union but the direction is broadly clear.

Robert Peston: But the degree of political union that many people think would be required to make a long term success of monetary union would require an undermining of what many people would think of as being fundamental to a nation’s identity. For example, the ability to set your own borrowing limits, tax in the way you want to, spend in the way you want to. Is it realistic that, for example, a country like France, very proud of its identity, would ever actually make that kind of sovereignty sacrifice, what do you think Antony?

Antony Barker: I mean completely right Robert, that I mean political is local, finance is international and what we’re having to deal with is a situation of a sort of investment theme is emerging markets, political theme though is submerging economies, and it’s how do you actually make that balance. And it’s not just the political side, it is the whole regulation, it’s financing, and it’s actually employment is the key to all of this. I mean our biggest problem at the moment is there are simply not enough people in work, if we can’t get people into work we certainly can’t improve productivity and therefore we can’t improve growth.

Robert Peston: And if I could just slightly unpick the impact on the UK of all of this, what do you think the bigger risk is? Is it simply the continual contraction of our biggest overseas market, the Eurozone being an incredibly important market for British exporters, or is it the risk of financial contagion from an over-leveraged Eurozone banking sector to some pretty big and still pretty leveraged British banks?

Saker Nusseibeh: I think there is a risk of contagion. I mean look, the big risk is this is the biggest trading partner, if it goes under we’re really in trouble and we’re in trouble anyway, so it just adds to the mess. But the issue is that so far the UK has gotten away with being seen as being better off than the rest of Europe because it has appeared to be doing the right things. If you look very closely, the debt level is still high, the government it still in trouble, it can’t quite pay it down and so on. Now, the markets have been concentrating at the more extreme levels, Greece, now Spain, if they stop concentrating on Europe, or indeed if Europe unravels, they might then start to unpick our own yields and our own treasury and that is really problematic because then we become very vulnerable.

Robert Peston: Yes, I think that is a big issue which we’ll return to, but Jeremy, can I just ask, the Chancellor said the other day the big thing bearing down on the British economy is Europe, is he right about that or have we got other problems of our own?

Jeremy Whitley: We certainly have a lot of problems to deal with. It’s not an easy situation that we’re currently in. We have had 20-odd years of tremendous growth financed by debt, as we know, and it’s not just in the UK, it’s throughout the world and everything. One of the fortunate positions that we have been in in the UK is being able to have an adjustment mechanism that you absolutely require, and we’ve had that through the currency adjustment. So sterling has adjusted by 20%-odd or so over the last five years; that’s absolutely crucial. With a common currency you don’t have that ability. It’s like a sort of pressure cooker, you need an adjustment mechanism, and that’s why when you have a deflationary problem caused by the huge amount of requirement to deleverage in terms of the debt, and you don’t have that ability to reduce your currency situation, then you’re going to have to have other aspects which I’m afraid turns out to be austerity and, as we know, in terms of unemployment as well.

Robert Peston: You take a relatively more optimistic view of the outlook for the Eurozone, how big a risk would you think there would be, Guy, that if the Eurozone were to get its act together actually investors at that point would look at the fundamentals of the UK and say actually UK debt, UK deficit, underlying growth doesn’t look that great. You could get a bit of a flip from sort of the UK being perceived as the great safe haven into a situation where actually our borrowing costs could be forced up a bit.

Guy Monson: Brilliantly anticipated, exactly what I was going to say. I’ve just come back from Frankfurt and stepping off the plan you’ve almost got a feeling of stepping off into Hong Kong or stepping off into some of the export giants of Asia, the manufacturing side is extremely robust. The earnings numbers are staggering, and the productivity gains that German manufacturers are getting of shifting business out into the rest of Europe is huge. You fly across to Portugal or to Spain and amidst all the gloom what you do hear is huge productivity initiatives on the ground, particularly this concept of Banco hours and flexible working. And frankly, these are several years ahead of the productivity discussion that we’re having in Britain, and at the same time as we know today we’re running double the deficit that the Eurozone is. Issuance of gilts this year will be more than issuance of debt in Greece, Portugal and Ireland put together, so the possibility that the eye of financial markets shifting a little bit to a slightly more hostile view of the UK I think is a very real one.

Robert Peston: Antony, what is sustaining these astonishingly low gilt yields in the UK?

Antony Barker: Well a number of things. I mean you talked about safe havens earlier, I mean the US and Japan also have the benefit we can print money so we can control things, so we are slightly different. I think there’s a big demographic change, and one of the problems is defining what is new normal. A lot of financial commentators are sort of comparing with the last sort of five, ten years and saying we’re at historically low levels. The truth is this might be where we’re going to stay for an awful long time. If you actually look...

Robert Peston: You’re talking about growth.

Antony Barker: Well if you actually look at real interest rates because that typically runs about ½% above GDP growth, our view is that you’re probably looking at GDP growth of the order of about 1½-2% ultimately long term for the developed economies, real interest rates ½% above that, and it reflects a lot of the demographic shift that there’s an awful lot of net savers, be it pension funds, insurance companies looking to borrow, and there’s a demand therefore for safe investments. And the government is happy to supply that. We now have £1trn of debt in this country so the bank doesn’t want high interest rates either, so there’s a lot of people pushing it down and we’re going to continue to see this demographic shift. You know, as the baby boomer generation matures, retires, they want safe havens and that’s going to keep interest rates suppressed. So I think people have got to readjust their mindset as to what is normal going forwards.

Robert Peston: So although there’s a lot of talk about there being a bit of a bubble in sovereign, well not in the sovereign debt market of Spain in Italy, but in the US and the UK and Japan, you don’t seem to think that these yields are unsustainable.

Antony Barker: Quite the opposite. I mean we have obviously a slight perversity now that in many countries around the world actually you’re having negative real yields which really putting the money under the bed now does seem the most sensible long term investment strategy. That clearly can’t persist, so we’ve actually got to look at other ways of, you know, where are we going to find growth in the world. And this is really coming back to the point earlier about contagion is there and everybody recognises it, that’s why Australia tipped in seven billion into the latest fundraising, we’re that far away from the problem that it’s becoming important for everyone. The big question I would throw out there is do we want to revert to a sort of, a little Englander mentality, you know, maps were pink, Britannia ruled the waves, and in that environment we grow at 2% and everyone else grows at 1%, or do we now accept the real world dynamic is that actually the emerging markets are going to grow at 6% and that means that we could grow at 3% and that could be much better for us.

Robert Peston: And we grow at 3% by getting into those markets, by essentially developing our export industries and being better at selling to them rather than to Ireland.

Antony Barker: Absolutely. I mean it’s not just now the so-called referred BRIC S economies, if you now look at the so-called E7 which also takes account of Turkey, Indonesia and Mexico, it’s suggested that their GDP growth will actually outpace the established G7 by 2020. That’s not that far away.

Robert Peston: How long does it take though to re-engineer an economy, not simply in terms of where you’re selling to, you know, I think many people would argue that we are too dependent on the Eurozone and should our penetration, as you know, the statistics about how little we sell to China for example are genuinely shocking, but also the nature of British industry. I mean the big difference between the UK and Germany is Germany makes the stuff the world wants and we don’t to the same extent. How long will it take us to re-engineer in that sense?

Saker Nusseibeh: it’ll take some time. I mean I’d like to pick up on two points if I may. The first one about Germany. From the introduction of the euro it is noticeable that actually Germany has improved its position competitively versus its euro neighbours.

Robert Peston: But that’s part of the problem isn’t it, because its productivity is so much greater than its neighbours.

Saker Nusseibeh: And they took the pain with the joining of east and west Germany, so actually they went through the pain, they went through a very bad period, their productivity shot up and they made basically basic manufactured goods which emerging markets want. So they’re in a particularly strong position. Can the United Kingdom go down that route? It’ll take a long time. The problem is that the two export markets the United Kingdom’s in is either the financial industry really and other kind of service industry, both of which are in trouble at this stage. I want to though come back to the idea of interest rates, and they worry me here slightly. When governments are faced by so much debt, and you go back two thousand years to the Roman era, the easy way for governments to get out of debt is simply to devalue the currency. The Romans did it, the Islamic empire did it, I mean everybody’s done it, so you have to assume at some stage that the way out for the United States of America, and it will be followed possibly by the UK and others, is to bring down the value of the currency and that assumes some kind of inflationary push which assumes at some stage higher interest rates. But I do accept that it might take two or three years of stickiness before we get there. My argument is you can’t pump so much liquidity into the system and then expect it not to happen, and you can have a really awful situation where we do not have growth but we have an inflationary impact. That is quite possible.

Robert Peston: For an investor though it’s a nightmare isn’t it, because I mean you’ve had all this liquidity creation, the creation of new money, it’s been pushing on a string as it were, it’s done very little either to inflation or to growth. A lot of people think common sense would say that at some point it will kick in, but how on earth can you judge when that will be and how do you protect yourself as an investor?

Jeremy Whitley: Well I think the important thing is to find the right companies ultimately that you’re investing in. We do not invest in countries per se, we’re investing in companies. And coming back to the point about manufacturing in the UK, is it completely bust? Well parts of it yes and has been for a long, long time; parts of absolutely not, you can find some fantastically strong good quality areas, manufacturers who are making goods and services that people around the world really want to buy.

Robert Peston: We have some absolutely great companies. The trouble is we just haven’t got enough of them have we, that’s the problem.

Jeremy Whitley: Well I’m afraid the UK market is a bit of a misnoma isn’t it, frankly, because we have accepted far too many international companies of dodgy quality, can I say, who are listed on the UK market. And it’s quite an easy case not to invest in them, we don’t have to, which is fine, but we can find some fantastically strong companies with pricing power on a global basis selling goods and services that customers absolutely require and the risk of failure of not using them is very high so they have pricing power and that’s very, very good. So for a stock picking type investor I think there are good pickings out there.

Robert Peston: Guy, what could the government do that it’s not doing at the moment to give a bit more oomph to economy in your view? Is there anything it could do or does it basically just have to sit back and let events take their course?

Guy Monson: The key question is whether the current QE programme is extended, but most critically whether the assets that they purchase or the way they structure it is rather different. And Adam Posen, one of the most pro-QE, most sort of dovish members has put out quite a provocative paper, we may hear more tonight at the Mansion House, talking particularly helping SMEs and individuals directly with credit, and I think if you read it, not a million miles away we’re saying should we buy some other assets. Well possibly even do what the Hong Kong government did back in the Asian crisis and buy some equities. That would be the next phase to do would be a more aggressive QE model, but it does bring with it, if you like, off-balance sheet liabilities and it does put the risk we heard earlier of eventually debasing the currency that much higher down the list. So I think a bit of a nudge more there would be helpful, otherwise I think it’s wait and see and a productivity-driven agenda.

Robert Peston: Now we’ve been talking very much about the Eurozone but it is striking, for example, that the Indian economy seems to be slowing down pretty fast, it’s quite difficult to read, partly because the statistics are not the world’s more reliable, but it does look as though China is slightly struggling with how to go into this next phase, what’s your own view? Do you think China will have a soft landing?

Antony Barker: I think most of the Eurozone would love to be struggling at only 8% growth. The thing about China is it’s switching its growth, it was sort of infrastructure capital investment driven, it’s now become consumer-led, and we spoke about companies a minute ago and you only have to now look at the number of luxury brands that are listing on the Hong Kong market as they’re trying to pick up that sort of consumer-led expansion.

Robert Peston: But it is striking that as the infrastructure spending has slowed down actually what we’ve seen is a pretty sharp deceleration in the rate of growth, which makes one feel that I’m afraid consumers in China aren’t yet picking up the slack to the extent that they need to.

Antony Barker: No they’re not, they’re clearly not and probably we became over-reliant on China buying up every commodity going on in the world. In the same way it became dependent on easy credit, I think we all became dependent on easy sales, and now the world has got a lot harder for everybody and we need to now change the way we’re looking at things, and it’s not only just changing how we sell and trade, it’s also changing how we invest. And you made the comment about some of the large companies in the UK, and maybe as an investment industry we’ve been hampered by sort of rigorous divisions into is it equity investment, is it bond investment, is it some other form. But I mean if you take a company like BP, it will raise capital wherever in the world is cheapest and most tax efficient for it to do so, it doesn’t really care about where investors are wanting to buy. So if I want to get exposure to BP I could buy its equity on various markets around the world, I could buy its various bonds, or I actually could become a landlord to one of its headquarter buildings. My same underlying risk is BP but they will give me different risk/return trade-offs and I now need to factor that in, rather than take a sort of blind numbers approach and say well actually equity risk premia look very big at the moment, equity markets must be cheap. Well that would be fine unless you come back to my earlier point where I actually think bond markets are probably priced where they probably ought to be, and actually equity markets aren’t that cheap after all.

Robert Peston: So does that mean we should be thinking less in terms of countries and regions and more just in terms of individual strong companies?

Saker Nusseibeh: I think there’s a lot to be said for that. I mean there’s several things I agree with, one of you I disagree with. I think it’s right to think in terms of individual companies, that is absolutely true, I think it’s absolutely right to think in terms of a different approach to investment. I think the myth that has been shattered is the idea that there is such a thing as a risk-free investment. There isn’t, therefore all investment is about the preservation of capital and the cashflow that you get out of them. I think we agree with that. I think there has been a seismic shift that still overbears above individual company level although I still remain a powerful stock picker and I believe in picking companies, and that’s political risk. We have two generations of investors in the City and elsewhere who have not factored in politics in a meaningful way in their investment.

We now enter a new phase which is much more like the 19th century, I think, where politics is much more pertinent. The Chinese growth story is a political story not an economic story. How Europe behaves in the next three years, and I agree there is a positive impact, I think it’s going to go up, is a political story not an economic story. Indeed, how the United States copes with its debt is a political story not an economic story. And so we’re entering somewhere where we have to factor in politics and, yes, I completely agree, you can’t split the world into equities and bonds any more or properties, it’s all the same kind of exposure. They’re all equally at risk in different ways and you’re simply trying to preserve your capital and generate a cashflow.

Robert Peston: Jeremy, do you have a?

Jeremy Whitley: No, it was quite interesting that, because you’re always slightly aware of rationality of pricing within an industry, and once you have political interference and you have government involvement you have a different competitive environment and you have to be aware of that for every industry that you’re looking at, and companies in the competitive environment within that industry. So absolutely, because they have a completely different shareholder base if you like, and they have a different attitude towards risk. So if you can find industries that don’t have that political interference then that’s quite interesting for us.

Robert Peston: I mean since we are talking about politics, there is one quite big risk that we’ve not talked about which is broadly to do with the way that people see the private sector. And I was very interested, Guy, you were talking about the extent to which in order to get a bit more oomph into the economy we may need to see yet more public sector support for lending in various ways. It might be guarantees for lending to small business, it might be Bank of England, it would be backed by the Treasury but Bank of England purchases of other forms of debt, even possibly, well corporate debt has been on the agenda. But all of this is essentially government public sector involvement in the private sector, and of course this brings to the fore the whole issue of pay and corporate governance, which is right at the top of what individuals are thinking about at the moment. To what extent do these corporate governance issues occupy any of you? I mean they certainly are very much to the front of people’s thinking in board rooms and they’re very much to the front of people’s thinking in the media, what do you think about them?

Saker Nusseibeh: Well I mean, as you might well know, Hermes has been at the forefront of pushing for government for many, many years because we think it is not just the right thing to do, we actually think it’s better for the economy and better for companies. Well governed companies we think perform better over time.

Robert Peston: And the focus on pay?

Saker Nusseibeh: And the focus on pay is also important, which is that ultimately the pay has to be commensurate with the risk and with the ability of the company to generate it. The issue that you have to my mind is the control. One of the cycles that you saw in the, and I’ve been following the UK, obviously, pay cycle with some interest given our position and our involvement, but one of the really interesting bits is this: over the last 30 or 40 years UK plc is no longer owned in reality by the UK saving pool, the pension schemes, it’s very small.

Robert Peston: I think in the ONS 5% of UK equity is now owned by pension funds, UK pension funds. Tiny.

Saker Nusseibeh: UK pension funds. Tiny. And if you add even the private investor that’s still tiny, so we have a situation where we have, if you like, the company universe, the stock market universe where it affects us now every day. We want governance of it but actually we lack the ability to govern properly because we’re not the majority shareholders. And this brings back this thing that we need globalisation to work more effectively in governance issues because it does matter. And that I agree, it means we have to go out of little England mentality and talk to the other large stakeholders.

Antony Barker: I mean you commented about pension funds owning less equities, the corollary is actually they’re owning more bonds. They own more corporate bonds, and the problem a lot of the sort of shareholder activism really focuses on shareholder in equity investment rather than bond investment. And, perversely, good bond management actually involves avoiding torpedoes which actually in some respect to pick up the yield you want to invest in bad companies and hope they’re not as bad as you actually thought they were going to be.

Saker Nusseibeh: I agree. I mean we’re trying, as you know, within our governance unit, EOS for example, to push it not just into corporate governance of bonds, we’re trying to push it in other areas too. But still the truth remains that ownership of UK plc is less UK now even though it affects the UK economy. And this is a political issue.

Robert Peston: But there is this great collision which I think you were talking about, Guy, which is that finance is global, actually not just finance, for some individuals in some jobs the market is a world market and yet these issues are very national.

Guy Monson: I think from the UK perspective, one must remember, I think it’s 60% of FTSE 100 earnings come from abroad so we are talking a truly global use. I think the challenge for governments going forward is going to be these enormous corporate cash balances that are emerging. We are looking at cashflow as a percentage of GDP or profit as a percentage of GDP, hitting levels not seen since the rebuilding of Europe, a lot of it with US capital after the war. We’re seeing astonishing sacrifices by labour which are piling up profits and cash, and I think we’ll move quite soon on from the pay agenda to the bigger question of saying what is the role of these global supernationals in terms of putting their cash to work, and it’s one of the reasons that I do find equities attractive relative to bonds because that is where the real balance sheet strengths lies.

Robert Peston: But I mean it is causing the government and the Chancellor enormous frustration that these cash balances are piling up, what can he do though to encourage companies to start investing?

Guy Monson: I think a consistency of framework is needed, a broadly supportive political backdrop to ambitious investment decisions, and I’m afraid we go right back to Europe, we need to clear a few political obstacles off the table to give a little bit of overview. We saw IBM and Coca Cola last week raising money, two year money below 1% and yet we’ve got returns on equities which are commonly seen in UK and global equities in the high double figures. There must be an arbitrage between those two.

Jeremy Whitley: I think what they need to do is to encourage long term investment, because I think talking about the international markets - you look at America, the average holding period is three months. If you can encourage long term investors who consider themselves absolute owners of the business and willing to pay management sensibly, so the incentivisation is commensurate with the job and so on, and encourage long term investment, then I think that will encourage.

Saker Nusseibeh: And that is a fascinating concept. I mean I agree with you, I think equities are very attractive because they give you exposure to inflation, they’ve got strong balance sheets, they clip a coupon if you think of a dividend as a coupon, so they’ve got all the things you’d want to own of them, the issue who is the long term investor. And in some ways, because we’ve got ourselves into this thought process with particularly DB schemes that pensions should own other things other than equities, and even within DB schemes in this country if the regulator marks to market every three years, which is arguably a very short term, we’ve actually removed the one pool of money that can become a long term owner that looks for long term interest. And therefore the answer must be I’m afraid, sorry, to think locally again and to be slightly nationalistic again and say it is in the interests of the United Kingdom to make sure that we enhance the pool of savings of the people of Britain as a pool, but then invest in the long term in the corporate structure of Britain for the benefit of Britain, yes, and exposed to the rest of the world and so on. But unless they do that then actually we’ve lost the lever that we have as a people to control part of the economy in which we have to live and survive.

Robert Peston: Could I ask, we’ll pick that up in a second if that’s alright, I mean I think that issue of long term financing is important but while we think about that could I also ask you about the short term financing challenge. There is this tension between strengthening the banks, which is encouraging them to deleverage, lend less, coupled with the political pressure on them to provide finance to the bits of the economy that need it, and right now it looks as though, frankly, it is the reform agenda which is in a sense overshadowing the lending agenda and not enough money is being provided by the banks. Have we got the balance wrong and what can be done to get the banks to lend more?

Jeremy Whitley: Well I think they’ve certainly tried haven’t they with Project Merlin and I think for once one feels slightly sorry, rock and a hard place for the banks. On the one hand they’ve got to do this, on the other hand they’ve got to recapitalise as well, so I think it is a very tricky situation. I’m sure the others will have a.

Antony Barker: Well you’ve got a disconnect because what is certainly true is governments must spend where nobody else is, and it would appear that a lot of UK economy is driven by the SME sector, and whilst it may be true that the quoted companies are sitting on more cash than they ever did most SMEs are worried about whether they’ve got enough money to pay the rent and staff at the end of the month. And that translates right down into individuals as well. And so yes, governments are sort of doing great big picture thinking, most other people’s financial focus is about two to three weeks at the moment and, you know, can I keep the bailiffs away for another month or two. So we need to sort of do that. I mean you made the point about pension schemes and what is actually happening of course is we’re moving more into a defined contribution environment, these big defined benefit schemes are not going to be around for much longer, we’re pushing everybody through auto-enrolment into sort of big state-backed arrangements, which means we now also need to change the methodology by which people invest.

I mean how does somebody putting away £25-50 a month contribute to a big international infrastructure product, how do they get into secured loans, how do they get into sort of specialist property transactions, how do they even invest in liquid emerging and frontier markets? Other than a sort of rather convoluted and opaque structured product, the supply side hasn’t actually dealt with that problem either. And at the moment you also have to say if you look at the last 20 years, you know, equities actually only outperformed government bonds by 0.2% per annum, and that’s by the time you factor in fees and volatility there’s a lot of people who say actually can I see, is it justifiably rewarded risk. I know we say past performance is no guide to the future but people have had a lot of bad experience which they need to unwind.

Robert Peston: Unfortunately, it’s been an absolutely fascinating discussion but we’re coming quite close to the end of our time, it’s actually flown by. Can I just ask each of you to sum up and answer one question which I think is on everybody’s mind; outlook for the UK, are you positive, are you negative, optimist or pessimist? Each of you in just a few seconds please.

Saker Nusseibeh: Difficult is the answer. Very difficult. I’m not entirely convinced that it’ll be plain sailing. We are in a low growth environment, I’m not entirely convinced the government has done everything it can to generate enough growth, I’m not entirely convinced that we will avoid the eye of the storm.

Jeremy Whitley: Stagflation I think would be a better outcome than deflation. Once you have deflation in the system it is very, very difficult to get out, so hence we’ve had all the QE experiments and everything in the last few years which probably haven’t been as successful as the Bank of England has hoped for, but I would have thought over the next few years we will have very little growth. Very tough. Very tough.

Robert Peston: Guy?

Guy Monson: An austerity agenda, low growth, risks to the pound, but tremendous value building up in global and UK equities, and perhaps ironically the stock market and the investments and the insurance companies and our huge pension industry is where the salvation really lies.

Robert Peston: Antony?

Antony Barker: In the short term very difficult. I mean we’ve not really talked about the impact of the US at all and we’ve got elections in that year, 95% of government bond yields in the UK are driven by what’s happening in the US, so a lot of stagnation through the rest of the year. The difference is though ultimately we’re in control of our own destiny but we need to do something about it and realise that the problems that we’ve created are all of our own making. We are the state.

Robert Peston: Well I’d like to thank Saker Nusseibeh, Jeremy Whitley, Guy Monson and Antony Barker. I thought it was an absolutely fascinating discussion, I certainly learned a great deal. What I take away from all of that is that actually the consensus is that we will be growing as an economy, not very fast, maybe only 1% for the next ten years, we had 3% remember from ’92 to 2007, but that is still, it is a big change, it’s a big drop but it is still growth and it’s a lot better, I think provides us with a tiny bit of comfort than what Japan had to go through for 20 years. Many thanks.

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