Britain Grinds To A Halt
Almost everyone agrees we're in for a recession. The only real question is: how deep will it be?
A little-known fact about the Chancellor is that he attended the same Scottish public school as one of his predecessors, Norman Lamont. Who knows what they put in the water at Loretto, but somehow they've contrived to produce not just two of the last four British chancellors, but the pair who drove the nation's economy into recession.
Alistair Darling may claim we're not there yet (the technical definition is two successive quarters of negative growth), but the evidence is there to certify that the boom is officially over.
After 16 years of uninterrupted growth (63 quarters in all), the economy spluttered to a halt in the second quarter of this year. GDP figures – which were expected to show an etiolated 0.2% growth rate – instead registered precisely zero.
Does this really matter to anyone but statisticians? The answer depends on whether we're looking at a hiccup, or the beginning of a recession lasting well into next year – and everything a recession brings: sharp rises in unemployment and business bankruptcies, sinking government finances, a plunging pound, and years of depressed conditions in the equity and housing markets.
Almost everyone agrees with the latter prognosis, but it is quite possible that Britain's real economy will turn out to be less sensitive to housing and credit problems than the financial markets assume.
Many of the statistics regarding Britain's consumers and manufacturers are by no means catastrophic, and ours is hardly the worst placed economy. We still have the highest interest rates of any G7 country, giving the bank plenty of scope to cut on evidence of prolonged weakness. Britain is highly unlikely to become the sick man of Europe.
But we must be cautious. Watching Britain and America slide into economic mayhem has been like observing a group of heavy smokers insisting that fears about lung disease are overdone. There is a dangerous lag between inhaling and infection. Our debt-ridden economies and consumers have had it coming.
The shocks now impinging on the economy are at least as challenging as back in the 1970s, and the final piece in the jigsaw of gloom – unemployment – is about to drop into place. Britain should count itself lucky if it escapes with only two quarters of negative growth, though there's a danger that continuous pessimism will feed on itself to make a bad situation worse.
The bank should act now. The excuses for not cutting interest rates immediately are wearing thin.
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