Tuesday, July 15, 2008

Always the last to know

Are we there yet?

In recession that is.

I suppose by the usual measure - the one the government use - two consecutive quarters of zero or negative growth it's quite probable that the answer is no, but for your average man or woman in the street the latest inflation figures say otherwise.

Of course, the "headline" rate of inflation is far from the real figure which, interestingly, we find out not from any approved government source, but from a price comparison website.

A basket of 24 staple products at Britain's three biggest supermarkets - Tesco, Asda and Sainsbury's - has increased in price by 21pc compared with this time last year, according to price comparison website mySupermarket.co.uk.

That, for me, is far nearer the real inflation rate than the 3.8% figure quoted. An inflation rate of around 20% will probably sound quite improbable to most people under the age of forty but for people of my generation it is all too familiar.

That is why we know that the next stage will be the big pay demands from the public sector. These will be backed up with strikes and displays of union power. The government will try to resist, but as they are in hock to the unions and largely dependent on them for their existence, they will give in and we will see the public sector pay rises adding to the inflation rate.

Public sector pay rises will, of course, impact public spending and with government finance under the squeeze from declining tax revenue and increasing welfare costs as more and more people find themselves out of work, this will mean big tax increases - which in turn will fuel more big pay rises and more job cuts.

When it comes to determining whether we are in a recession the government will say no, but the government are a little like the innocent party in a love triangle when it comes to the economy. The other two parties - businesses and the people - know what if going on because we see it every day, but the government, like some cuckold in denial, is always the last to know.

Are we in recession yet? Yes - and everyone apart from the government is aware of it.

The one thing we are perhaps not aware of is that this recession will bite like no recession has for a very very long time. Previous recessions came when inflation was still a regular double digit (and more or less true) figure or when the nation was nowhere near as addicted to cheap credit than we are now. When the reality of this recession strikes it is going to hit a lot more people an awful lot harder than any recession has probably done in the past.

Those who can will already be taking measures to mitigate this impending disaster by reducing the amounts they have on credit, curbing unnecessary spending and saving whatever they can, but for far too many people this will not be easy. Businesses will collapse, jobs will be lost and bankruptcies will escalate.

Most of us already know that.

No comments: