“Without rising incomes you cannot repay debt.” Stephen King chief economist at HSBC, speaking to journalists at the end of August, was pessimistic about the chances of Western governments avoiding a recession after a month of financial turmoil had caused a deep drop in consumer confidence. EU polling showed the worst slump in consumer and business confidence since the collapse of Lehman Brothers in 2008 and confidence fell once again in the UK and in the US.
If we ask why the Euro currency is in such danger, the answer comes around very rapidly to debt. Greece, Portugal and Ireland all have vast debt crises, sufficiently large for fears to be quite realistic about the collapse of the Euro currency across the entire Eurozone. Markets deal mainly in short-term speculation and, as a result, this prospect of financial turmoil continuing and, potentially worsening to a terminal degree, has sent markets into freefall. Normally, the banks would be willing to step in but many, if not all o some degree, are themselves exposed with their own very significant liabilities in debt laden nations. Because the news coverage is instant and possibly because there is a need to feed the 24/7 news coverage machine, consumers have not been protected from the knowledge that a double dip recession, which is a recession followed by a short-lived recovery, followed by another recession, would put both their jobs and, as a result, their homes in danger so they, quite understandably, are reluctant to spend and are racing to pay off their own personal debts.
Even though the economy has been in recession for two years, the average household has been marginally better off over this period, although they might not have actually felt it. Interest rates have been bumping along the bottom which has, in turn, caused mortgage rates to fall, cutting the cost of the biggest monthly outgoing for most families. Last year and contrary to expectation, a strong stock market rally gave the kiss of life to many people's pensions and investments. Certainly, prices have risen dramatically for energy and food and, in these terms, many families are already feeling the pinch but, so far, it is only people who have lost their jobs, or had their hours or pay cut, who have felt the full pain of this recession. And while unemployment has risen, it has not reached the numbers that many of us, who had seen other depressions, might have predicted
However, all this could soon change. UK plc’s finances are tenuous at best, and there are fears that the Government’s spending cuts together with job losses in the public sector could prejudice consumer spending, tipping our fragile recovery into a double-dip recession. Until now, the risk of most job losses had been in the public sector who will need to worry about their jobs but if the economy worsens with a slide into further recession, many companies in the private sector may also be looking to lay off staff.
Michael Dicks, the chief economist at Barclays Wealth, said: "On balance we think the fiscal tightening will take the edge off the recovery rather than completely wrecking it. But a double-dip scenario cannot be ruled out."
Those working in the public sector are already aware of the scale of potential cuts in the nation’s publically funded work force. Even if things don’t turn out to be quite as bleak as has been forecast, most public sector employees face pay freezes, benefit cuts and widespread job losses. For many, it is going to feel like a recession whether technically our economy ticks the right boxes or not.