The Greatest Recession

I was returning from holiday this morning through Miami airport expecting to report on the end of the British recession.

In the US, the economic situation is now commonly referred to as “The Great Recession”. I think on that basis, following today’s third quarter GDP numbers our own quagnmire can confidently be termed “The Greatest Recession”.

Indeed leading economist John Philpott refloated the D-word – depression. We are not there yet. But today’s number, showing that between June and September the economy shrunk by 0.4 per cent thus making this recession the joint longest on record, is a significant moment.

First, this recession is dreadful even given the unprecedented stimulus actions mainly from the Bank of England but also the Treasury. Where do the critics of quantitative easing, for example, believe the economy would be in the absence of these supports?

Second, this is bad news for the government. The days of “No more return to boom and bust” are long gone of course. A small bust could have been written off as a small accident in a world financial collapse. The most enduring economic recession in the major European nations asks serious questions about how the economy was run over the past decade.

But don’t think that this offers a free pass to the Conservatives. George Osborne’s betting the farm on becoming Britain’s Big Cutter is beginning to look a little perilous.

If the economy continues like this for another quarter, it is perfectly possible that the economic argument will be aeons away from a competition over cuts. Expect the Conservatives to start to tone down the rhetoric on cuts.

Thirdly, when not one of the City economists polled by Reuters or Bloomberg expected today’s GDP number, we know we are in strange times indeed. The conventional relationships, formula and equations that describe an economy are not working. Those with the best magnifying glass on our economy are troublingly blind.

The data may be bad, but even given that the diagnosis is difficult, and the medicine as unproven and experimental as it’s ever been. The English patient is back in intensive care.

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