Can we stop trying to fool ourselves please. We in the UK, are not going to go back to our complacent world of heady consumerism and conspicuous consumption any time soon. Almost every week there are more reports of 'green shoots' as well as confidence indicators starting to perk up again. These are of course positive and encouraging signs and I certainly don’t wish to be the Jeremiah casting a dark pall over the news – after all, we have had enough doom and gloom in the media over the past eighteen months to all become serial window sill jumpers.

However, the concept that we will have simple 'V'shape economic recovery, a quick bounce back and all live happily ever after, is frankly a story from 'LaLa land'. The combination of our personal debt levels, job insecurity with rising unemployment, housing nerves and sub prime political leadership (that is across the political spectrum with a few notable exceptions) all compound to ensure that our UK based economic environment is going to be very constrained.

As you will no doubt recall, more than 60% of our economy is based on household consumption – and if we are not consuming as much then our economy will not be growing as much. Thus we should be more realistic. Our economy isn’t doomed but it is going to be depressed for some years. The length and depth of this will be dependent not so much upon the global developments, although they will be important, but rather on the strength, effectiveness and moral courage and leadership of our politicians. Who will be brave enough to stand up and say not that it’s just going to be tough, but to tell us how tough and what we all have to do as citizens to pull together to fix it. It is not just their responsibility as politicians, but also ours as well in being prepared to back them and make the sacrifices. Not pleasant and probably not fair for many either.

So are we all back to teetering on the window sill? Absolutely not. The fact that the UK has got itself into a funk does not mean that we should “Let us sit upon the ground and tell sad stories of the death of kings” ...as quoted by the unfortunate Richard II.

Firstly there is growth elsewhere around the world and that growth will affect us indirectly. Although the emerging markets are held up as the saviours of the global economy, we need to be suitably circumspect over the risks. Secondly, we should also take heart from research highlighting the longer term strength of investment in the seemingly mature and'dull' markets of Europe and areas closer to home.

The old fashioned power of compounding of dividends over time in fact shows a greater and steadier return for investors than just looking for quick gains from stock price appreciation. Barclays' excellent Equity Gilt Study shows us that if we invested £100 in 1945, it would have been compounded to £92,460 with the dividends having been reinvested: however this would have been a mere £5,721 without any reinvesting.

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f there was a single area I would ask the politicians of all parties to look at now it should be to try to act to address the driving force of our economy and the largest employer. I talk of course about the smaller to medium sized companies, or SMEs as they are often referred to.

This groupare the nation’s commercial risk takers, not in the sense of City traders who are just punting other people’s money, but the risk takers who put up their own capital, career and commitment for their business. This is the group that we need to cherish as they are the ones with the initiative and drive to see these economic downturns as opportunities and not just failures.

If there was any area that should be having any of the tax incentives it must be this group. These entrepreneurs are the basis for the future successes in the recovery and the companies that will be able to develop the British economy especially at the high technology and innovation end of the spectrum. Less taxes (even just by the number of them if not the value), simpler reporting and incentives for successful development are all relatively cost effective routes.

What we also need to do is to make it far clearer for school leavers and graduates that such entrepreneurialism is recognised and rewarded, and to borrow the President’s well used phrase “Yes we can”. Yes but let’s help them, and at least we can make it easier for them to start and grow.

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And finally.......... Authorities said a man has been charged with domestic battery after he drenched his wife with a garden hose and elbowed her for smoking in the house. Police said the couple began arguing when the wife began smoking a cigarette in their home.

When the victim picked up the phone and began calling a friend, authorities said the husband believed she was trying to call police and elbowed her in the mouth during a struggle to grab the phone.

The woman was soaked with water when deputies arrived. The husband told deputies he had been watering the grass and did not intend to spray her.

Gardening can be just so dangerous.

Have a good week.

Justin A. Urquhart Stewart

Director

Seven Investment Management Limited

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