Initially, back in autumn 2007, I was of the view that we might just avoid a technical recession in 2008, but that the impact on disposable incomes for the majority of people would make it feel as if we were in one. Since consumer confidence depends more on perception than reality, we would to all intents be in recession.

Sadly, I now fear that we will not only have a technical recession, but a full-blown one.

The reasons for this are many-fold.

DEBT:- the level of indebtedness in Britain is unprecedented. Most of the growth in the past decade has been debt-fuelled. While mortgage rates may fall (but not as fast as base rates) this easing of the pain is unlikely to apply to credit-cards and other unsecured debt. At the same time, access to new debt will be severely curtailed. Thus, not only will the cost of debt weigh down on households, funding new expenditure from debt will no longer be an easy option. Consumer spending will therefore fall.

Trade imbalance:- it is shocking that Labour has allowed so much of our productive capacity to slip away as though it did not matter. We cannot carry on with such a massive trade deficit. Closing that gap will entail reducing consumption.

Pensions & Savings:
The ticking pensions timebomb is now visible to most people who are even remotely economically literate. The rational response is to increase one’s savings ratio. Higher savings = lower consumption.

Housing:
The ratio of average house prices to average incomes is totally out of kilter. This has been unsustainable for years, but was kept afloat by cheap and abundant mortgage credit. The BoE may be able to keep credit cheap by cutting rates, but the banks have had a salutary shock and need to rebuild their balance sheets, so you can forget abundant for the next year or two. There will be a correction in house prices. On the basis of the last three corrections, it will be in the order of 30-50% in real terms. With inflation low, that means 25-45% in nominal terms. It does not require widespread repossessions for that fall to hit consumption.

TAX – TAX – Tax – Tax
Firstly, the public finances are in a mess with Brown having run large budget deficits in a growing economy, so Darling now has no room for manoeuvre.
Secondly, Brown allowed significant growth in the public-sector payroll which makes it difficult to cut back public spending quickly.
Thirdly, as the economy slows, revenues will fall, but the existing dficits means that tax levels will have to rise, in turn reducing disposable income still further.
Finally, Council Taxes will rise again from April – and well above the rate of inflation. As Peter Cairns has pointed out, much of this is down to Government imposing extra costs (including pension obligations) while holdiing down central grants.

Historically, Governments tried to offset the downside effects of the economic cycle by boosting public expenditure – funded by budget surpluses during the “good” years. Perhaps believing his own claim to have abolished the economic cycle, Brown failed to build up the necesary war-chest, instead leaving the coffers empty – so that option is not open to Britain just as we face possibly the most adverse economic conjunction in decades.

We can have a debate as to where the money went – but what is obvious is that we are not prepared for the coming recession.

Can anybody show me where there is any “good” news on the economic horizon ?

Sorry my fault, but If asked a question relating to Independence, I sort of feel honour bound to give a reply.

Peter.

To talk about economic pessimism the discussion touches pensions, to which Peter Cairn casts his Highland-eye. This leads into one’s argument on how England can rebalance her accounts. And before you know it we are on to the BBC. [Sorry Mike Richardson, the Scots have made a good fist of running/ruining the BBC!]

Does anyone read past threads…? Do we not just choose the current battlefield, and deploy our forces/resources accordingly…?

Maybe YouGov should open a general comments thread, where an overall view of current affairs can be aired based upon current polling information. We could also build a collective [shudders] thread where we discuss etiquette…?

Robust UK economy, one thinks not:

“With the housing-market boom unsustainable and mounting structural flaws—such as a dearth of skilled workers, a pension system that needs reform, and a lack of innovation—Britain’s economic prospects look less bright. The economy is still growing, but the Bank is now faced with the unenviable task of reducing the impacts of the global financial shocks related to the American subprime mortgage crisis. September 2007 saw Britain’s first bank run in decades; the government is now deciding whether or not to nationalise Northern Rock, the bank that collapsed.”

© The Economist, 2008.

The represents the second of two paragraphs related to this article. Including the first paragraph would add more context (and gloom). [Backgrounders, Britain's Economy.] Hopefully one has not broken copyright laws…!