Is that it? Since last summer government ministers have been warning us to get ready for the worst recession in 60 – no, 100 – years. Now politicians and officials claim green shoots are sprouting up all over the place. Barack Obama is in the optimists’ brigade, as is China’s premier Wen Jiabao. And yesterday the cheerleaders were joined by David Miles, new member of the Bank of England’s rate-setting committee, who professed himself “guardedly optimistic”.
But all the rest of us can spot is business gloom and job losses, with workers at the software firm Aveva yesterday being the latest to join the casualty list. So should we trust the upbeat experts or the gloomy headlines?
Hard though it may be to credit, politicians and policymakers can get it wrong. How Norman Lamont must regret his premature and much-derided forecast of green shoots, made just months before the 1992 ERM crisis. And in last November’s pre-budget report Alistair Darling predicted a short, sharp recession with the worst over by this summer. He was wrong: the downturn has been much more severe, which is one reason why next Wednesday’s budget will reveal record government borrowing.
Even so, the big fireworks of this crisis may have fizzled out to be replaced by a smouldering mess. Last year was marked by banking collapses and vertiginous dives in the economic statistics; 2009 is shaping up to be gloomy, but nothing like as bad. House prices in Britain still appear to be falling (despite the odd blip), but at a slower rate. Financial institutions still fall over, but this time they are relatively small businesses such as the Dunfermline building society.
Where Miles and other policymakers are right is in pointing out how much they have done to take the edge off the recession. Whether it was Darling’s £21bn boost to the economy last November, the Bank’s slashing of interest rates or its more recent venture into creating money, policy levers have been pulled. That did not happen soon enough or in large enough scale, but families and businesses should still be feeling some benefit. The financial-data company Moneyfacts calculates that a household with a £100,000 tracker mortgage would have seen monthly repayments drop from £586 last October to £356 now, a sizeable boost to family budgets.
Still, what academics are already calling The Great Recession is not over. As economist Graham Turner says: “To call this a real stabilisation is like adding 2 and 2 and making 5.”
The US housing market is where this crisis began and prices there are still dropping at an annual rate of 20%. Until that makes some kind of recovery, all talk of an end to the banking crisis is for the birds. This is a truly global downturn, which means that Britain, as an open economy, is highly exposed to what happens in other countries.
On the home front, the jobless figures are likely to climb above 3 million and keep going well into next year, because unemployment is typically one of the last indicators to turn up. The budget will mark the start of a long squeeze, with public spending cut and taxes going up. Even when the recession is officially over, it will feel like one for a long time.