While the rest of the world fretted about financial crises, the socialite
Nicky Haslam threw open his family’s former south London palace on Thursday
night to 800 of his “closest friends” for a ball that resembled a scene out
of The Great Gatsby.
Fuelled by a vodka bar and crates of champagne, royalty, high fashionistas,
showbiz stars and aristocracy drank, danced and cavorted their way long into
Friday morning. Lady Annabel Goldsmith was said to have retrieved her
diamonds from the V&A for the evening. The fashion designer Zandra Rhodes
and artist Andrew Logan arrived together in purple fancy dress, while Daphne
Guinness sauntered through the throng sporting so much jewellery it looked
like body armour.
To the strains of swing jazz, Prince and Princess Michael of Kent glided
around the dance floor, alongside Lord Lamont and Alan Yentob, the BBC
oligarch. And there, in the middle of a frenzy, stood the 70-year-old host
with the talented and beautiful Jemima Khan on one arm and Paris Hilton,
looking like a Hollywood starlet from the Roaring Twenties, on the other.
Only hours earlier billions of pounds had been wiped off world stock markets
and banks were still staving off collapse. But for the great and good the
band played on. Prince William was out on the town, clubbing like a prince
whose only concern about recession was his hairline. In Regent’s Park the
likes of Emma Watson, who plays Hermione in the Harry Potter films, and
Sienna Miller graced the Frieze art fair, where buyers were expected to part
with more than £200m.
However, beyond Britain’s gilded elite, the party is already turning to
hangover as people such as Gavin Brown are discovering. Brown is about to be
made redundant from a firm in Lincoln that sells alcohol to bars, pubs and
nightclubs.
“The state of the drinks market is terrible at the moment,” says the
28-year-old father of two. “Lots of bars and clubs I was contacting eight
months ago, when I started, no longer exist.
“I’m serving the end of my notice period and I don’t have anything to move on
to. The job market is rubbish at the moment. I just don’t know how we are
going to cope — Christmas is just round the corner.”
Brown is one of 700,000 people that City economists predict will lose their
jobs between now and the end of next year as the recession really begins to
bite.
On Thursday the government is expected to reveal that Britain’s economy
contracted by 0.2% during the third quarter of this year. The fourth quarter
is widely forecast to be worse still — Global Insight, a firm of economic
analysts, forecasts a contraction of 0.4%. Two consecutive quarters of
negative growth are the technical definition of a recession.
Last week Gordon Brown provided a ray of optimism when his huge rescue package
eased some of the jitters over Britain’s banking system. He claimed: “If we
can co-ordinate national action around the principles I have set out . . .
then I believe we can come through these difficult times and be stronger for
it — both as individual nations and as a global community.”
However, the prospect of a painful and prolonged recession made stock markets
fluctuate wildly for the rest of the week.
Britain is now bracing itself for a downturn that promises to be worse than
the slump of the early 1990s; and where previous recessions have hurt most
in the north, this time it is likely to strike hardest in London and the
southeast.
Some politicians fear the worst. The Tory MP Sir Peter Tapsell, who was born a
year after the Wall Street crash of 1929, told George Osborne at a gathering
of Conservative backbenchers last week that Britain was heading for a repeat
of the Great Depression of the 1930s.
“Farms and homes will be repossessed,” he warned. The 78-year-old party
grandee said that pensions and public sector salaries would have to be cut,
adding: “Remember, two years after the Great Crash even the Royal Navy was
in mutiny.” He was referring to the 1931 Invergordon strike, provoked when
sailors of the Atlantic Fleet were told to accept 10% wage cuts.
Was the elderly MP getting carried away with doom and gloom? How bad is the
downturn likely to be? While talk of depression is overdone, experts expect
a tougher recession than was previously forecast.
“We are still in a phoney-war stage,” said Miles Shipside, commercial director
of Rightmove, the property website. “The penny simply hasn’t dropped: many
people just don’t realise how bad it could get.”
The fall in house prices is already more dramatic than in the early 1990s,
when they fell by about 20%. Forecasters at ABN Amro, Capital Economics,
Global Insight and the estate agent Knight Frank all think that house prices
will fall by 30%-35% from peak to trough this time.
“The pace and extent of these falls make it quite plausible that we could see
2m people in negative equity by 2010,” said Ed Stansfield, a property
economist at Capital Economics. “That’s more than the 1.8m we saw during the
1990s.”
Nerve-racking it may be, but negative equity on its own is not disastrous.
Though it limits homeowners’ ability to borrow, it is a serious problem only
for those who have to sell their property.
Economists are more concerned by the sharp rise in unemployment, which grew by
its fastest rate for 17 years in September. High job losses often presage
two of the most damaging aspects of recessions: bankruptcies and
repossessions. Banks are taking a hard line on mortgage arrears.
The housing charity Shelter said last week that in one case a bank was trying
to seize a home where the owner was just £800 in arrears, even though he had
about £40,000 of equity in his £180,000 property.
KPMG, the accountant, forecasts that insolvencies next year will top 150,000,
the highest level since records began in 1960.
“Mortgage costs, food prices and household bills are all up, and banks are
unable to let consumers borrow their way out of trouble. It’s astonishing we
haven’t seen a spike in insolvencies already,” said Mark Sands, personal
insolvency director at KPMG. “After years under immense strain, we think
that next year tens of thousands of people’s finances will finally snap.”
There are strong signs that it is the south, so dependent on the financial
services industry, where the recession is biting hardest. Almost 30,000
Londoners and 20,000 people in the southeast lost their jobs between June
and August. In the same period, 16,000 Scots and 14,000 people in the
northeast became unemployed.
According to Equifax, the credit reference agency, the number of business
failures in the southwest grew by almost 10% in the third quarter of this
year. There was a 6% increase in the number of company collapses in the
capital. Over the same quarter the number of business failures in Scotland
and eastern England fell.
In an attempt to preserve their standard of living, many middle-class
professionals are trying to moonlight their way out of financial trouble.
According to American Express, the credit card company, one in five people
are feeling so squeezed by the credit crunch that they have already turned
to their hobbies or additional part-time jobs to make ends meet.
Adrian Hall, from east London, who earns more than £40,000-a-year in a
marketing role for a university, is making postcards, restoring furniture
and charging friends £50 for a lift to the airport to help make ends meet.
“When the price of everything started going up about six months ago I realised
I had to earn extra money,” said Hall, who reckons he is boosting his
earnings by £300 a month. “When prices go up you’ve got a choice: earn more
money or see your standard of living fall.”
Peter Fewkes, a conference organiser from Ruislip, northwest London, earns up
to £80 a week by selling his unwanted belongings at car boot sales. His
wife, Michelle, has started earning £75 a week by giving piano lessons.
“It’s noticeable that boot sales have become more busy of late,” Fewkes says.
“You even see people selling goods bought at cash and carries. When they
stop holding car boot sales because of the weather in a few weeks, a lot of
people may struggle.”
Even the bankers and financiers, who have reaped huge rewards in recent years,
are starting to feel the pain. Rumours are rife in Mayfair, the centre of
the UK hedge fund industry, that at least one big fund is on the brink of
collapse.
Those thought to be suffering losses include Citadel Investment Group, which
once had $40 billion under management but last week felt moved to dispel
rumours that it was being forced into emergency borrowing. Another firm,
Highland Capital Management, admitted that it has had to close two of its
funds.
One source in the industry said: “It is not a case of if one of the big funds
goes down, it is a case of when.”
Until then, however, the bankers, bonus boys and glitterati will continue to
keep up appearances. On Wednesday stars of the fashion world such as Eva
Herzigova, the jeweller Theo Fennell and the designer Patrick Cox will flock
to the West End for Elton John’s annual Grey Goose character and cocktails
thrash. A week later the fashionistas move on to the Harper’s Bazaar and
Moët do — the beautiful and the glammed gathering — and then Vogue’s
fantastic fashion fantasy party.
Even in Iceland, where the banking system has had to be nationalised and the
whole country is at risk of sinking under debt, the party spirit lives on.
Yesterday revellers in Reykjavik were enjoying an end of the world party.
