Wharf bankers prepare for worst

In contrast, HSBC chief executive Michael Geoghegan is less optimistic and he told The Wharf there is a “good chance” of a recession.

Dr Leunig said: “We are in for a period when people will get poorer but it’s not a recession.

“A recession occurs when there are two successive quarters of negative GDP per capita growth, effectively the economy shrinks over two financial quarters. That hasn’t happened yet and nor is it likely to in the near future.”

He added: “The average person is half a per cent better off this year than last. But because the tax take has gone up and certain things are more expensive people are more gloomy.

“But for some people the problems are very good news. Savers are making lots of money, with Halifax, for example, offering eight per cent rates.

“If you are in your 50s and have paid off your mortgage then things are very good for you. The people with problems are those who need credit.”

According to Dr Leunig people feel worse off now because of recent prosperous times.

“People got used to a boom. The Government claimed for years there would no longer be a boom and bust cycle but we’ve just enjoyed a very long period of boom and now we’re experiencing the bust.”

And Dr Leunig had some words of comfort for hard-pressed Wharf workers.

He said: “I don’t think there will be mass redundancies. There have been some job losses but the City is so diverse it will survive.”

The banking view

But HSBC chief executive Michael Geoghegan is less optimistic about the immediate financial outlook.

He told The Wharf: “There’s a good chance of a recession. But a recession is not necessarily a bad thing, it makes you focus on the principles of business and we’ll have to see what happens.

“Certainly there are two things that worry people – one is inflation and the second is employment. If either of those get out of hand, if unemployment rises, you’ll have a recession.”

But Mr Geoghegan thinks HSBC is well-placed to ride out the economic storm.

“We make sure we have the funds before we lend,” he said. “It’s a fundamental of the company and for years it sounded very boring but in a situation like this it sounds very sensible.

“We’re also a very highly-capitalised company and journalists and investors used to criticise me. But now we have to have a strong capital base and strong deposit base.”

Fellow Canary Wharf bank Credit Suisse is more confident the economy will avoid recession.

But its latest economic research, published last week, did not rule out the possibility, noting cutbacks in output, employment and investment. The bank is awaiting a response from the Government to the possibility.

The business view

The general gloom is mirrored in a survey by the London Chamber of Commerce and Industry (LCCI).

More than 80 per cent of London businesses expect economic growth to worsen over the next year, almost double the number of companies predicting a decline this time last year.

They also expect inflation to worsen and unemployment to rise.

LCCI director of policy Helen Hill said: “Business confidence continues to fall in London. It is especially concerning that 85 per cent of business firms are pessimistic, given the contribution this sector makes to the London economy.

“The Bank of England should avoid a rise in interest rates that will add to business woes.”