The thousands of job cuts seen over the last week are just the tip of the iceberg, the chief economist at KPMG has said.
And it will take a big gesture from the Government next week if it wants to have an impact on the recession, according to Andrew Smith.
Mr Smith, the top economic thinker in the UK at the global financial services firm, said the signs were not good for manufacturing firms in places like the West Midlands, because potential export opportunities based on the weak pound might be cancelled out by protectionist policies from governments around the world.
Speaking just a few days after BT announced it would be shedding 10,000 jobs before the end of the financial year, Mr Smith said: “I’m afraid this is just the start.
“The Bank of England has admitted we are looking at a downturn in output over the next 12 to 18 months, and it’s inevitable we are going to see more job losses.”
Mr Smith said the current financial crisis was unusual in that it had started in the financial sector and moved outwards, meaning white-collar professionals were among the first to be affected on a large scale.
He said the two biggest issues at the pre-budget report set to be released next week would be finding sources of funding for businesses and easing the tax burden on the public.
“I’m hoping for a big gesture from the Government at the pre-budget report,” he said. “I’m reasonable hopeful they will produce something big in terms of reducing spending and tax cuts.
“Alistair Darling recently said we were facing the worst conditions for 60 years. They haven’t yet managed to persuade the banks to go back to the lending levels they were at before.
“It’s slightly tough to say whether the banks will respond to interest rate cuts. What the Government’s done has underpinned the banking system but it hasn’t persuaded them that they need to start lending again.
“We will just have to see if the Government has the power. The Federal Reserve in the States is more or less becoming a direct lender to businesses and we might have to do something more like that. It might sound unlikely, but if I had said to you a year ago that within three months we would see huge capital injections into the market you would have thought I was bonkers.”
He said tax cuts were likely to be targeted at the lowest earning parts of society, where they were most likely to be spent rather than squirrelled away in savings accounts. This might mean a cut in fuel duties, or a reduction in VAT levels.
“You have got to be careful what tax changes you make because in this economy you don’t want to make tax changes which aren’t going to be spent,” he said. “This suggests you are going to see it on the lower spending side of society where they are most likely to be passed on.”
And he added regardless of what was announced, the pre-budget report would end up becoming extremely significant. He said: “It isn’t inconceivable that it will be a mini-budget, in that rather than floating some ideas they will actually make some changes.”