The first day of June is regarded by many as the first day of summer. Apart from those about to take exams, people tend to cheer up at this time of year. Yesterday, though, 1 June seemed more like national gloom ‘n’ doom day.
A Financial Times analysis predicted that the UK consumer recovery would be the slowest for 180 years. Given that consumer spending is such an important part of our economy, this is effectively saying that the economy will be in tick-over mode until 2015. Together with public spending, consumer spending accounts for 85 percent of the economy, says the FT. Exports and business investment won’t take up the slack.
As if that isn’t bad enough, house prices are about to crash too, says Frances Coppola:
The housing market is currently even more overvalued than the market of the 1980s that crashed spectacularly and caused misery to thousands. And households are already terribly overstretched in other areas, with falling real incomes and high debt levels.
The housing market crash twenty years ago will look like a minor blip compared to what is coming.
Michael Carty’s monthly economic commentary was just as cheerful. His conclusion:
The uncertainty facing the UK’s ‘twin-track’ labour market both reflects and contributes to the wider uncertainty that characterises the current sense of an economy in limbo.
There are some encouraging signs suggesting that a return to growth is possible. But it is too soon to be able to know if they represent a real bounce back for the economy, or whether they are temporary events that might succeed only in pushing growth back to around zero.
So the odd bits of good economic news may signify just enough growth to stop us dropping back into recession but not enough to undo the damage of 2008-9.
But prize for doom-monger of the day must go to the Guardian’s Larry Elliot with three articles, one of which contained a further three reasons not to be cheerful. (Nested doom-mongering; brilliant, eh?) The US may be sliding back into recession and the UK could be heading the same way, as its manufacturing recovery falters, says Laughing Larry.
But that’s nothing compared to the triple crunch. The global economy and its financial system is still unstable, he warns, so the risk of another financial crisis hasn’t gone away. At the same time, energy prices are rising, something for which Britain, with its North Sea reserves in decline, is particularly badly prepared. Finally, over the longer term, climate change creates new environmental problems requiring more public investment to solve – investment which isn’t there at the moment. So, as he puts it, “ATMs freeze up, the planet warms up, and the lights go out”.
All these predictions are gloomy but, unfortunately, they are all plausible too. Growth will probably be slow, house prices will probably fall and energy prices will increase. Another financial upset is still a possibility and ever more likely if the regulators don’t reach some international consensus. Climate change is more of an unknown, though most of the argument is about the extent to which it is man-made. That rapid climate change is happening is acknowledged by most scientists as well as generals, political risk experts and the insurance industry.
If you accept that these gloomy scenarios are even half right, it’s hard not to conclude that the next decade will see increased pressure both on the state and on individuals. The lifestyles, services and benefits we enjoyed during the long boom of the nineties and noughties may be out of reach for many of us for years to come.
Oh well, at least the sun is shining in London – for now.
Update: It seems that yesterday was even gloomier and doomier than I thought. In the New Statesman, David Blanchflower said that it may now be too late to prevent another recession. (Hat Tip: Michael Carty) Addison Wiggin at Forbes reckoned that the next financial crisis is just around the corner. (Hat Tip: Frances Coppola) Even the editor of the usually Osborne-friendly CITY A.M. said that, for the first time for 18 months, he was worried about the economic recovery. (Hat Tip: Prateek Buch)
Doomed, I tell ye, doomed!