City: Green shoots vulnerable to a late frost

THE headlines said it all. After the annus horribilis of 1992, there seems to be no doubt about it - 1993 is going to be a good year, a year of economic recovery, renewed consumer confidence and prosperity and, yes, perhaps even an upturn in the housing market.

Evidence of green shoots poking through the frozen soil of recession seem to be everywhere. Even the usually staid Financial Times last week chose to splash on the 'busiest winter sales for years'. Traffic brought City centres to a standstill as shoppers flocked to the high street, the paper reported. The managing director of Selfridges on Oxford Street said he had never seen such crowds of shoppers.

Then we had the Institute of Directors reporting a sharp climb in business confidence; shares reaching record levels on the stock market; and the Chancellor, Norman Lamont, in renewed mood of confidence, saying: 'There is every reason to believe 1993 will be much better than 1992,' with the British economy outperforming its main European competitors.

Well, perhaps he is right. It would certainly be difficult to get much worse. John Major, the Prime Minister, was at it, too. He claimed 1993 would mark the start of a virtuous cycle of sustainable growth and prosperity. It is hard not to get carried away by this new mood of optimism.

I have a sneaking suspicion, however, that it will all end badly once again. Expectations are getting way ahead of what is realistically possible. Admittedly, things look more positive now than at the time of Mr Lamont's numerous other attempts to call the end of the recession. The three-point cut in interest rates and sharp fall in sterling since Britain's withdrawal from the ERM has transformed the outlook for many businesses and homeowners. That is being reflected in enhanced consumer and business confidence, for long one of the main barriers to economic recovery.

But can we really expect things to get so much better in 1993? I think not. A bit better, certainly, but no return yet to the boom conditions of the late 1980s. It is now clear beyond doubt that taxes will have to rise in the next Budget to cope with the burgeoning Government deficit with VAT and excise duties likely to take the hit - adding to inflationary pressures and putting a brake on growth. Some big business failures said to be looming as the economy pulls out of recession, could further discolour the rosy picture being presented by Government and the press.

One of the oldest stock market sayings is that the easiest way to make money in shares is to do the opposite of what everyone else does. If you wanted to follow that line of contrary thinking, you would be getting ready to sell shares. This bull phase probably has a little further to run yet. It would be nice to see the FTSE-100 share index crack the 3,000 barrier; the way the bulls are charging right now, there is every possibility it will. But a big correction at some time over the next two months looks all too likely. One morning soon the market is going to awake to find the weather outside is not quite as bright as it had thought.