Any other business | 18 December 2010

From elections to ash clouds, 2010 was a year that taught us to expect the unexpected

This was a year of predictable trends and unpredictable events. It was predictable that the UK would limp out of recession behind France, Germany and the US, and a reasonable bet both that we would avoid a double dip and that we would not avoid a burst of inflation. Observation of past cycles made it easy to predict that banks would return to profit while brutalising their customers and showing no remorse. Many economists had foreseen a crisis of the euro since the day it was dreamed up, because they did not believe a single currency could work without fiscal and political union: they were right, and despite successive bailouts, that crisis will gather momentum into 2011.

But then came the unpredictable. Look back at investment columns in March and April, and you’ll find they were all about positioning your portfolio for a hung parliament. No one foresaw the Lib-Con coalition, which has helped turn a faltering recovery into a more robust one by offering business and consumers a clear view of the path ahead, however rocky. On the darker side, no one expected the ash cloud or the arctic freeze-ups, or that an offshore accident would wipe £40 billion off BP’s market value. The financial consequences of these physical events are reminders that, even if economic patterns can be relied upon to repeat themselves, today’s world is full of uncertainties. Raw material prices suddenly spike as shortages are amplified by speculation. Globalised logistics are interrupted by turmoil in the earth’s crust. Shares that had long been labelled ‘dull but safe’ suddenly plummet. Neighbouring countries suddenly become dangerous credit risks.

For business leaders, all this makes tight focus on core strengths a more useful attribute than bold blue-sky vision: hence Prudential shareholders’ rejection of their chief executive’s plan to transform a traditional UK insurer into an Asian giant.