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  1. Wealth
April 24, 2018updated 27 Apr 2018 10:32am

Liquid Lunch: Economist Ruth Lea on who’s right on the money

By Alec Marsh

Spear’s editor Alec Marsh lunches with the outspoken economist

Ruth Lea ponders the menu: ‘I’m going to be a pleb and have the cheeseburger. I’m inspired by Donald Trump,’ she explains with a chuckle. What about the curly kale, served with red pecan nuts, apple, radish, sprouts, ginger and miso? They say it’s good. The veteran Brexit-supporting economist is unmoved: ‘We don’t have chips, do we?’ she says, baffled.

Lea inspects the back of the menu. I draw her attention to the sweet potato fries. ‘Sounds a bit Japanese to me,’ she says, possibly doubtfully. This is the Malibu Kitchen, I state, as if that’s an explanation. Lea lays the menu down and laughs: ‘There are no chips,’ she trills. ‘A cheeseburger and sweet potato fries… would Donald Trump approve of this?’

So is she a Trump fan? She thinks: ‘Um. I’m not overly hostile. He’s a strange man, and a very unusual chap to be president of the United States of America. I do slightly worry that he’s a tad narcissistic, which is a nice way to put it, and not always quite as reliable as you might wish. But actually his first 12 months have been quite successful – he’s been fortunate because the economy has been doing well.’ She changes tack: ‘I’m afraid to say that I do rather enjoy the fact that he upsets so many lefty liberals.’

Which she isn’t bad at either, I don’t say. Does she approve of the tax cuts? ‘Yes, yes I do,’ she says firmly. ‘A lot of firms have actually given pay rises to their employees.’ The rate of corporation tax was high, she notes.

Ruth Lea started working life at the Treasury in 1970 and toiled in the civil service for 16 years until, in her own words, she ‘privatised’ herself. Since then she’s been ITN’s economics editor, the chief economist of Mitsubishi Bank, the policy director of the Institute of Directors and now economic adviser to Arbuthnot Latham. And as you’ll have noticed, she doesn’t pull her punches. Does she have any allergies, the waitress asks? ‘No I don’t think so,’ she breezes. ‘Apart from certain people.’

Chief among those is Gordon Brown, whom she does not rate. ‘I was never taken in by Gordon Brown,’ she states. ‘I said at the time that his great spending boom would lead to tears, and of course I didn’t realise quite what tears there would be.’

Which chancellor does she rate, then? The best, she says, was Nigel Lawson (‘his tax reforms were terrific; they were actually spot on’), though she has a high opinion of Denis Healey too (‘he started to restrain public spending… he stuck to his guns… very bright’). Lea is also fond of Norman Lamont – ‘very undervalued’.

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Of the governors of the Bank of England, her money is on Eddie George and Mervyn King, even though the latter tripped up over the credit crunch in 2007. ‘But once he realised the enormity of the problem he reacted very quickly,’ Lea follows up. ‘He slashed interest rates, quantitative easing – he piled in, I thought he was absolutely on the money.’

And what about present incumbent of Threadneedle Street? She pauses. ‘On the economy, fine. He’s kept rates low, which has been a sensible thing to do, and he’s not got too hysterical about the pick-up in inflation… Three per cent is neither here nor there in my opinion, having lived through the 1970s, when we had 25 per cent.’

Back then she was a statistician in the Treasury – an experience that leaves her with a respect for those at the Bank of England and the Office for Budgetary Responsibility, whose task it is to create forecasts that are proven wrong over time – not least since they predicted a recession as a consequence of the EU referendum.

‘I wouldn’t say they were fiddling the figures,’ she says, though I get the feeling that she might like to, ‘but when you’re talking about economic scenarios for the next 15 years you know perfectly well that it’s an almost impossible thing to do because of all the assumptions that have to go into it.’

Lea starts to carve up her burger: ‘The idea of forecasting 15 years ahead is positively absurd. It’s difficult enough to forecast 15 months ahead. Economic forecasting, as the old joke goes, is [there] to make weather forecasting look good.’

That said, Lea believes the Bank and OBR have been honest about the reliability of their forecasts. Her ire lies with the way others, notably politicians, interpret them. Among those are George Osborne, whom she rates for much of his chancellorship: ‘I think what he did was with integrity and determination and that’s why I’m all the more disappointed by what he’s done since with the Brexit stuff.’

Fortunately, those forecasts were wrong – so what does she make of the UK’s economic prospects outside the EU? ‘I’m optimistic about the country, post-Brexit Britain,’ she says frankly. ‘I don’t see why not. When you think about huge growth, it’s not in European markets, which are really mature, and a lot of Europe has big demographic problems.’

‘We were saying these things ten years ago,’ she declares, ‘that the EU was a shrinking share of the world economy and therefore, if you are a trading nation as we are, you really need to be exploiting the other markets better. It’s still true, but more so, because the rest of the world has grown so much quicker and of course we’ve had another ten years of babies being born in Delhi and old people getting older in Germany,’ she laughs.

‘So I’m very optimistic. It’s what I want, what a lot of people want. When Theresa May talks about global Britain, I know where she’s coming from. So far it’s been a bit sporadic – that’s the kindest way of putting it. A lot of us have got very frustrated and I can see why the likes of Jacob Rees-Mogg have got a bit excited. He’s a good egg; he’s only saying what he believes.’

Is Lea worried about the UK economy? ‘Not unduly,’ she replies. ‘It grew last year quite respectably – 1.8 per cent is quite respectable – and I suspect that by the time the ONS has finished with it it’ll be more like two.’ And growth this year? ‘I always say 1½ to 2 per cent, which is what most forecasters are saying.’ What about next year? ‘I’m assuming that productivity growth will pick up and under those circumstances the economy should continue to grow, but not at breakneck speed.’

What about the pound – where will that be come 2019? Her bet is at $1.35, on the back of rising interest rates stateside, which she welcomes, noting that it has given British manufacturers a competitive edge.

Later, one Trumpian burger and a portion of sweet potato fries down, Lea returns to the subject: ‘About the pound, it has helped to rebalance the economy quite nicely, because exports have picked up quite a bit.’ Pause. ‘Which is good,’ she chirps, ‘because the economy was terribly dependent on personal consumption and there was a yawning gap on trade, and that’s partly reversed now.’

So far, so good. But what about Comrade Corbyn? He must be a worry: ‘Yes.’ She laughs uncertainly. ‘I was very concerned about their manifesto.’ The costs of ‘renationalising great chunks of the British economy’ would be ‘absolutely ginormous’. ‘I remember thinking, “Why aren’t the Tories making more of this?” It’s no good saying “remember the Seventies”. I remember the Seventies but most people don’t.’

Labour’s tax rises for those earning over £80,000 would ‘cripple anyone whose got any entrepreneurial spirit’ and massively increase government debt – with ‘horrific’ consequences for gilts. ‘You could even find a buyers’ strike when it came to debt. At the very minimum, the costs of financing this debt would increase significantly. And who would pay for it?’ she thunders. ‘The taxpayers. And who would pay for it in terms of intergenerational shift? Future taxpayers.’

At which point, it is time to go. As Lea extracts her handbag from the side of the table, a weathered Filofax, a totemic relic of the Eighties, spills free. Still going strong after
all these years.

Ruth Lea and Alec Marsh were guests of Malibu Kitchen at The Ned, London EC2R


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