Skinflint's City Diary

I believe it was Shaw who said that if all economists were laid end to end they still would not reach a conclusion, so it is a trifle worrying when they not only produce positive forecasts, but two sets of them produce highly similar ones. The immediate reaction is that the answer cannot possibly be right, but perhaps we are being a trifle unfair, especially when they are being surprisingly optimistic. Stockbrokers Phillips and Drew and the Economic Models Group have both calculated what the effects are likely to be of the Chancellor's latest measures, and have produced credible pictures.

They have done the sums on the assumption that the policy will work, which seems gratuitously foolhardy in view of the total lack of control over public sector rises and the irritating challenge of granting MPs four times the rise everybody is supposed to be limited to. But both do explain that confrontation with the unions is inevitable, though not being politicians or prophets they fail to provide convincing pictures of how Healey will emerge from that fracas with his skin intact.

Phillips and Drew — who expect unemployment to reach 11/2 million — foresee the Government knuckling under to union and public pressure, plus presumably the predictable outcry from the Confederation of British Industry, and producing a reflationary budget in the spring. EMG reckon' the jobless total will reach only 1.1 million and perhaps they imagine that figure to be less emotionally laden for their forecast is produced on the basis of unchanged policies. But both the figures have since been superseded by the official prediction of 11/2 million unemployed over the next twelve months which suggests — or am I really becoming unbearably cynical — that it will be substantially above • that.

All in all a picture of only occasionally relieved gloom. The ray of light is that inflation will start falling faster than one imagined. Not of course to the patently implausible figure of under 10 per cent by the end of next year that Denis Healey promised, since that was never on without catastrophe' but down to,16 per cent by this time next year and plummeting rapidly. after that. Considering that by the end of this year it will be running at round about 30 per cent that is not bad.

But before you start perking up at the promising prospect bear in mind that the decline in downturn in investment and the general start of the recovery will come some six to nine months after everybody else's recovery — they reduced inflation faster and so they get going faster. That means that just as Britain's fragile upturn is trying to get going it will face rising commodity prices and continuously worsening terms of trade as a result of running faster inflation than other countries.

And that will come on top of a period which has seen Britain's already inadequate levels of investment fall still further. And now to cap it all estimates of the North Sea oil reserves are being revised downwards. And do not be fooled by the improving balance of trade that will be accompanying. this: living standards of the country as a whole — -erhaps excepting miners and others with a strong bargaining position — will fall by. several percentage points so we will be importing less. In other words even the balance of payments improvement is a sign of weakness.

It is little wonder that the Stock' Exchange is showing distinct weakness. It is not likely to be encouraged much by the actions of such normally shrewd prognosticators as Jim Slater whose complicated deal of cutting down his debenture load was actually a way of reducing gearing — a sort of battening down of the hatches in anticipation of rough economic weather ahead.

Please do not read

The long-awaited Sandilands report on inflattowaccounting must be dynamite. It is being kept under such cumbersome wraps that even people who have not been involved and have not seen it are being sent notices not to talk about it. Only a -very few selected influential experts have receive advance copies under the most awesome instructions not even to talk to themselves. They are the ones who have to study the huge report before it is released to the public —, in only about a month's time — so that they can give expert opinions and guidance on it.

Others, though professionally involved, have not been sent so much as a precis or guidance note. What they have got is a very official piece of paper instead telling them that some copies have been distributed (though not to them so yah boo sucks) and adding that they are not to tell anyone how many copies have gone out, who to, nor to reveal whether they themselves have one.

This almost reduces the poor men involved to saying "no comment but do not quote me." Anyone would think that hordes of Russian spies would be paying fortunes for a copy of a long, complicated and reasonably predictable report about a highly technical aspect of accounting. After all, what can Sandilands say? He can point out that some adjustment to accounts is desperately needed and that the best way is probably to combine the accountants' method of adjusting for the current purchasing power of the various moneys in the books, with the replacement costs that manufacturers need to know.

He can also deduce how much engineering companies might have to aggravate inflation by raising their prices to a level which would ensure survival, and presumably he can make some recommendations about taxation, and its effects. Wowie. Do not sell anybody you have read this article.

Jackpot deferred again

A big . company getting stick for the wrong reasons is Associated Leisure. The Stock Exchange pundits have been comforted for the past two years by the big cash reserves of over £4 million. AL had stashed away as a result of the sale of its holding in Butlins. And while interest rates were high the company got a very nice return from this. But now, with inflation running at upwards of 25 per cent and interest rates at around 10 per cent, holding cash seems markedly less attractive (pace Sir Arnold Weinstock).

Yet now that AL's balance is down to about £2.8 million the analysts are getting worried. And to be fair they have some cause. AL got itself a reputation some years back of an involvement with the Mafia and an unsuccessful libel suit against the Daily Mail by the founder and chief executive confirmed public suspicions. Came a change of management. David Chanter was a bright management consultant but as managing director of AL he got a reputation for not being sharp enough to deal with the fly boys in his business though not all the blame lies with him for AL's unhappy investments.

But even such unpromising record does not mean that any depletion of cash resources is automatically bad, and for instance the company shrewdly bought back its convertible loan stock thus pushing up its asset value. If the analysts want to complain they

could more usefully focus on the, apparent difficulty the company.

has of increasing prices in line with! its rising costs. The vrewers who: are the main customers for the one-arm bandits, pin tables, juke boxes etc that still account for some 90 per cent of AL turnover, seem markedly reluctant to pay higher rentals.

And, given the state of the market, it is likely to continue so. AL may be the biggest in the amusement machine field in Britain but the competition is tough and the brewers wield considerable power. In view of that, more diversification of investments should help the company — so long as they are better than recent ventures — and analysts should be looking not at the cash balance but at the trading and management.