Deeper Recession
New figures from the National Statistics office show that the recession in the U.K was worse than at first thought, going down from peak to trough 6.4%. This compares with 5.3% for Euroland and 3.8% for the U.S. In other words we did worst.
When I was researching for my book 2010 A Blueprint For Change, the figure that struck me above many other alarming economic numbers, was the staggering level of the total debt of the U.K as a whole; in other words, business, households and the public sector combined. It is the second highest total in the world after America, but whereas there it is (June2009) 94% of GDP and $44000 per head of population, here it is a staggering 416% of GDP and $142000 for every head of our population, man woman and child.
I quoted this in the book to illustrate the extent of the crisis. I have since mentioned it in a blog at least once. John Humphries quoted it this morning on the Today programme to Ed Balls, who appeared not to know of it. Yet it is the key, for it tells that a very substantial part of the boom was unreal because it was borrowed and the actual level of economic activity was much lower.
As we struggle to pay off both public and private debt and live within our means the economy will reveal its true level. I suspect this may be lower than we think it is today. I do not believe in a double dip recession simply because the spike upward has been through government expenditure from yet more borrowing. We have never really left recession.
There are signals to see. House prices are now falling again and so is inflation. In reality this is very good news, but I am not sure that the public is prepared for this. The catastrophic mis-reading by the Treasury (or its domination by Brown and Balls) during the years immediately prior to the crash is the main reason for their misplaced hope that we are well on the road to recovery. There is a long way yet to go. The new government, faced with numbers no amount of political dogma could ignore, has made a brave start. We must now hold our nerve. For those in the public sector caught in this phase of the storm, times are going to be very hard. We need to remember this is not just a recession brought about by the economic cycle. It is the collapse of an entire financial model.
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