All the signs point to a new recession – a worse one

The markets have certainly been behaving as though it is

5 March 2016

9:00 AM

5 March 2016

9:00 AM

Just after last year’s general election, George Osborne delivered a budget that he hailed as proof that his policies were working. ‘The British economy I report on today is fundamentally stronger than it was five years ago,’ he crowed, as he started to detail the record number of jobs created and a growth rate that had accelerated past our neighbours. ‘Our long-term economic plan is working. But the greatest mistake this country could make would be to think all our problems are solved.’

As it turns out, this final sentence summed things up the best. There was growth but a whole lot of debt as well. The national debt today stands at £1,580 billion, some 50 per cent more than the Chancellor inherited. He was correct that we were growing faster than our rivals, even if, given the dire state of their economies, that was not much of a claim. Osborne was right too that lots of new jobs had been created — but at the expense of salaries which remained stagnant. Also, half of the employment growth derived from Britain’s ability to suck in immigrant workers.

Whenever equities start to crash, wise old heads quote the Nobel Prize-winning economist Paul Samuelson, who said that the markets had predicted ‘nine out of the last five recessions’. Today there is certainly some truth in that. Markets overreact all the time, and swing from elation to despondency faster than a toddler over-doing it on fizzy drinks. Even so, it is sometimes forgotten that Samuelson was also making another important point: the markets are right slightly more than half the time.

Since the beginning of the year, the markets have been behaving as if there was another recession looming. The price of oil has been falling drastically — dropping from $65 a barrel last May to under $40 now. Rumours have been swirling around some of the banks, most notably Deutsche Bank, the rock on which the German economy (and by extension the European economy as well) is built. It has all started to feel very 2008, and for a fairly simple reason — because it may well be.

A recession would hardly be that surprising. Another old piece of market wisdom holds that ‘every five to seven years everyone forgets that a downturn comes every five to seven years’. Booms and busts make a London bus look like a miracle of reliability, but even so, another bust is more than due. For the whole of the post-war period the average length of an economic expansion is 58.4 months (pre-war it was 35 months and in the Victorian era it was only 26). So where are we now? The British economy started expanding again at the beginning of 2010, so the recovery has now been running for 73 months. Much the same is true in the United States.

While there is some evidence to suggest that business cycles have become more elongated since the 1980s, this is still a heck of a long time. In reality, a downturn would be about as unexpected as football manager Louis Van Gaal getting fired from Manchester United. There is no shortage of signals that the outlook is worsening. The Baltic Dry Index, which measures the cost of those big container ships that ferry stuff around the world, has been crashing. Globally, world trade has stagnated. In the UK the revival of manufacturing (such as it was) has ground to a halt. In February, British industrial output suffered its sharpest fall for four years.

Lift up the bonnet and the British economy does not look in any better fundamental shape than it did in 2007. In many ways, along with the economies of the whole developed world, it is in much worse condition. In December, the Bank for International Settlements totted up global debt, and looked at how it had changed since the crash of 2008. The results were not encouraging — to put it mildly. It warned that far from coming down, debt was still exploding at an accelerating pace, to $140 trillion: 50 per cent more than in September 2007, when the credit crunch kicked off.

Over the seven years since the crash, the world has added as much to its total borrowings as it did in the seven years before the crash. And if the crash was a debt crisis, the work on fixing it has not even begun. Instead, the entire world has been running up yet more debt at a faster rate than ever, with the UK right at the front of the pack.

‘The Great Depression of the 1930s was a nine-year event,’ argued the US consultancy High Frequency Economics in a report last month. ‘Our hypothesis is that the rupture of 2008 caused greater damage than was immediately apparent. It still has not healed. We say the global economy is entering a third wave of contraction in a global depression that is now in its eighth year.’

True, the markets may have got this wrong. The economy may have recovered its poise by the summer and be humming along comfortably again. For as long as it is moving (and the cost of borrowing remains ludicrously cheap), it may not matter that the Chancellor is borrowing more than any of the European countries he loves to lecture.

But if we are staggering towards an overdue downturn, we will be doing so in far worse shape, and with far less scope to respond, than in 2007 and 2008. We faltered then, and borrowed to the hilt to recover. If we falter again, we may discover that Osborne’s ‘recovery’ was another debt-fuelled mirage. And the hard work of actually fixing the UK economy still lies ahead.

Budget Briefing 564x171 v2

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  • MickC

    Markets have as much connection with economic reality as Beatrix Potter’s Peter Rabbit has. They are not free in any meaningful use of the word.

    • CortexUK

      There’s an awful lot of qualification needed in that statement. You seem to suggest that markets by their very nature and detached from reality. This is wrong. You seem to suggest that markets by their very nature are not free. This is wrong.

      Markets manipulated and badly regulated by governments are detached from reality and not free. Case in point: the housing market. Destroyed by state manipulation and intervention over 20 years.

      • MickC

        And just when have markets not been manipulated and badly regulated by governments?

        No, theoretically markets by their nature are fine….as is communism. The reality is very different in both cases.

  • Frank

    “We may discover that Osborne’s recovery was another debt-fuelled mirage” – discover? Really? Why did you ever think that it wasn’t a debt-fuelled mirage? We are living in a Potemkin village and virtually none of our political leaders tell the truth.

  • Hopefully it comes just in time for the referendum. Osbourne’s credibility will be destroyed and so his pronouncements on Europe will be given no weight. Britain will vote to leave. Perfect. Bring on the recession

  • John Andrews

    Osborne has borrowed all that money to try and buy himself the premiership. It’s worth voting Leave to stop him succeeding.

    • CortexUK

      As I posted elsewhere…

      We now have an unwritten law in the UK, instituted by Gordon Brown: the Chancellor gets to spend tens, if not hundreds of billions of taxpayers’ money over many years on his personal campaign to take over as PM – preferably without bothering the electorate. I wonder if we can introduce a law that states no Chancellor can ever become PM. Think about it. It’s not as silly as it sounds.

      • 9sqn

        Good point.

    • Father Todd Untious

      He won’t win the premiership. That is Leicester City’s. He wants to be PM.

  • Father Todd Untious

    Osborne is an economics midget. He has doubled our national debt in just 6 years. That is £750 billion, or £15,000 for every UK adult.
    The worst Chancellor in 250 years.

    • GoJebus

      There is not one mainstream politician in this country, and certainly none with influence, who goes into bat for the people and small business. They are in it for themselves, for their narrow ideology and most of all for trans-global corporations. What they’ve done to our country is appalling, we are a people living lives of corporatist conformity, like pigs at a trough or Patrick Goldring’s broiler-house chickens. Big corporations and their political butt ticklers have rogered and will continue to roger the people up the backside, on tax, on immigration, on self-determination – and we can’t do a damn thing about it because we don’t have a real democracy and we are so f@cking stupid: in our onesies, watching Ant and Dec; or down at the shopping center where the shops are all the same, consuming, consuming, consuming, or gobbling down a McDonald’s cardiac surprise; or gulping our Starbucks, in our Nike trainers – like sodding hamsters at their water bottle. Only a revolution will be enough to get genuine change in this country and sweep these maggots back down the stinking river they’ve created for us over the last fifty years.

      • Father Todd Untious

        Now come on. It’s much worse than that.

        • GoJebus

          Yes, true. Fetch my pitchfork. I’m going to London.

      • iand

        So very well put sir.

      • Ian Walker

        Working for yourself is fast becoming impossible in this country, through Osborne’s policy of squeezing small businesses because that’s what the big company lobbyists tell him to do.
        Of course, since he’s never had a proper job in a proper company, nor has he ever known the real fear of poverty, how could he possibly understand what is right and wrong?
        We really need a small business expert in government who will actually push back against the anti-competitive garbage that the Treasury spews out in the name of ‘growth’ – growth for a few big consultancies at the expense of thousands of struggling small firms.

    • polidorisghost

      “The worst Chancellor in 250 years”
      Surely that accolade belongs to the idiot who claimed to have abolished boom and bust.

      • CortexUK

        Indeed. Patently silly to state that the Chancellor who failed to clear up a mess is worse than the Chancellor who made the mess in the first place.

        • Father Todd Untious

          The mess was made by the global elite of banking criminals immune to prosecution. The same scum who now seek to blame the poor and migrants for their greedy acts of deception.

          • CortexUK

            “the global elite of banking criminals”

            So tiresome. Come back with a grown-up point that recognises that 99% of those bankers were acting entirely legally within an appallingly bad and dangerous legislative framework designed by….drum roll please….politicians like Gordon Brown.

            You’re not a university lecturer by any chance, are you? You sound like an LSE Keynesian.

          • Bonge

            so do you think if there was a more fiscally conservative government in power in ’08 they would have prevented the global crash? No because they set up the legislative framework in the 80’s! The crash was the fault of the neo-liberal consensus and only regulation could have prevented it!

          • paul

            Thatcher de-regulated the Banks and decimated our Manufacturing base so we are now a service industry based economy fuelled by credit !!

          • paul

            50% of Tory Party donations come from the City of London Financial Sector !!

      • Father Todd Untious

        Or the idiot that sold our national assets off and cut tax for the rich.

    • CortexUK

      [Before you read this comment, note that I am NO fan of Osborne.]

      But there’s a big problem with the “Osborne has doubled the national debt” thing, isn’t there. While it is of course true, it totally ignores the context.

      Given that – in real terms at least – Osborne has cut spending, the increase in the national debt has been caused by the deficit. It was Labour who created and left behind the deficit. Osborne has cut the deficit. No, not nearly by as much as he said he would or should have done, absolutely. But nevertheless, he has cut it. And consequently the huge debt mountain is smaller than it would have been.

      What amuses me is when Leftists complain that Osborne has doubled the debt pile. Are they really arguing that he should have cut more to stop debt rising so high? Or that Labour would have cut more?

      No. Of course we know where Leftists always turn in this situation. “Borrow to invest”. You mean the policy that created this mess we’re in in the first place? I’ll come back on that when I stop laughing…

      • Father Todd Untious

        Labour did not “create the deficit”. There have been only 6 years of surplus in the last 60 years. Four if them under Labour. Thatcher ran a surplus once.
        Of course I would borrow to invest. That is what sensible Governments have done since 1693. What I am doing with mybwry observation is point to the hypocrisy of a useless Chancellor preaching austerity but using his credit card like a Surrey housewife with a footballer husband.

        • CortexUK

          Labour created the deficit that Osborne inherited in 2010, and has been reducing. The rest of my points also stand, unchallenged by your post.

          Borrow to invest? So your complaint is that the debt is too low. Fine.

          • Father Todd Untious

            The global banking crisis caused the defects across the World. Osborne is simply too useless go tackle it.
            I believe we should borrow more to spend our way to prosperity. Our debt is lower than it has averaged since 1692. Only the Tories pretend it is too high as a means to punish the poor.

          • Bob339

            Osborne reducing the national debt? He has done nothing about PFI. He has let Corporations off with billions of tax debt. He sold the GPO but left us with the postman’s pensions bill. Wake up man!

    • Bob339

      You get what you vote for. Osborne is a jew who hates Christians and feels no loyalty to the people he is supposed to serve. He is good at lining his cronies’ pockets though.

  • hmm

    THE recession never went away the so called recovery was more credit all FAKE

  • Jonathan Tedd

    Let me spell this out, so that no-one is in any doubt. The British economy is built on consumer spending, much of which, in turn, is debt-funded through the conduit of an inflated property market. The economy sucks in imports, contributing to a current account imbalance which is funded by asset sales and overseas borrowing. In short, the British economy is fundamentally fragile, and could not withstand any dramatic undermining of confidence.


    • CRSM

      Sadly you’re just teaching your grandmothers to suck eggs.

    • YorkshireBobby

      Very well put; why don’t more people understand this? certainly low interest rates will only bring more “bent” German cars and electronic tat that makes our balance of payments even worse. As for mortgages – I remember when you could borrow 2,5X single salary or 2X two salaries. If that was brought back there would be little house price inflation outside London.


    he national debt today stands at £1,580 billion, some 50 per cent more than the Chancellor inherited.


    Very funny. What does Matthew Lynn think? That we’re stupid.

    That’s the borrowing.

    There’s the

    state pension
    Civil service pension
    Nuclear cleanup [paid for up front]
    Losses on insurance.

    Nothing like only considering what your banker mates are owed, and ignoring what the public is owed.

  • CortexUK

    I’ve been trying to get it through to my family, friends and colleagues for years. 2008 wasn’t the crash. It was the start of what will end up in a crash.

    I use the motorway accident as an analogy. In 2008, our tyre blew out. We’ve spent the last few years fighting the wheel, spinning down the road, clipping other cars. We’re heading for an impact with the central reservation. Now, we might be lucky and avoid it – maybe end up in the ditch a bit battered and bruised. But on balance of probabilities, we’re going to hit it hard.

    Get ready to brace…

  • General_Patten

    Osborne is from Camerons wet social democrat Europhile quisling clique. I,e he hasnt got a conservative bone in his body. I,e our national debt is rising.

    • MrUnclevanya

      Sobourne (mr gidiot) and Cameron (Camerloony) appear to be both Cheer Leaders and Fifth Columnist for the Brussels Politburo and Soviets.

  • Ozzy Guy

    No worries mate! Just keep importing the foreigners…

    • crazydave789

      we might have to eat them when we cant afford to import any other form of foreign food

      • YorkshireBobby

        Paying Turkey Less than £10 for each of us to keep them out and “safe” in starts to sound like a bargain doesn’t it?

      • Garnet Thesiger

        Last time I went out for an Indian I got the turban stuck in my teeth….

        • crazydave789

          did you send it back – undercooked that was

  • Paul

    A “new” recession ? The last one never ended. Accord to the Fiscal Times, only 7% of all counties in the US have gotten back to pre recession levels.

    • deeegeee

      A good barometer of that is their house prices,still down an average of 28% over 2007 prices..the rest of their economies have followed suit.

  • Ipsmick

    Never have I read a more eloquent tribute to Osborne’s management of the economy.

  • paul

    The 2016 Recession caused by the Bankers & the policies of the Tory Government – KARMA – after 2008 !!!


      I am very pleased it will be the final blow for this vile Tory government nice one KARMA.

  • Tickertapeguy

    -European banks admitted to 1 trillion dollars in bad loans (loans that will never be paid back)
    -US national debt is at 19 Trillion and will reach 21 trillion. When we reach 24 trillion we cannot service the interest on the interest of that debt.
    -China’s exports are shrinking and her banks have billions in bad loans.
    -Brazil’s economy shrank by 4% and will shrink another 4% in 2016, mainly due to the collapse of the commodity market.
    -The Middle East economies are shattering due to over production of oil in order to gut the US shale industry. That failed and now the Middle Eastern region cannot recover with oil at 35 dollars a barrel.
    -Venezuela (an OPEC member) has collapsed. Inflation is at 165% and her economy is shrinking
    But the worst aspect of this depression (not recession) is that unlike 2008 there are no more
    Stimulus packages to bail banks out
    Quantitative easing has failed (banks buy newly printed money in order to buy bonds)
    Runaway national debt.
    All the safety loopholes we had in 2008 are exhausted.

  • Torybushhug

    I recommend you’ll make a daily note of all the things people call for more spending on. I keep a record of this and it runs into thousands of items, from mental health services to calls for increased spending on flood defences, guide dogs and tens of billions more to build up nations migrants are fleeing.

    This relentless entitlement mindset is behind out inability to reduce debt.

  • Ashley Stephens

    This is worrying news and I hope its not true. Already, there are thousands of people who are on the edge of bankruptcy or financial ruin.

  • James

    Cameron wants to blame the British people – our fault for voting leave. No wonder he pulled a quick referendum.