The Bank of England (BoE) projects the UK will ‘enter recession from Q4’. I will only accept we are heading into recession if the OBR says so when it next updates us in October.
Only those close to 60 will painfully know what a real recession feels like. While 2008-09 was a difficult period for the UK it was nothing in comparison with what was suffered through 1989-92 and 1979-83. 1989-92 was not merely a sharp downturn in the average house price, but a monumental wave of repossessions. Contrast this with the forbearances of 2008-09, which saw banks tolerate mortgage arrears and allow payment moratoriums until economic prospects improved. With rates slashed, families in 1989-92 could only have dreamt of this happening as rates were kept stubbornly high to keep sterling within the EMU. That is until White Wednesday in September 1992, when the shackles were removed, proving what good ‘leaving’ can do.
Sterling’s competitiveness-lifting slump helped the UK economy to a speedier recovery than what might have been in 2008-09. Whilst sterling plummeted in 1979, such weakness compounded inflation injections from the oil price shock. By 2008, the UK’s move up the economic food chain to higher value-added sectors meant weaker sterling spelt greater affordability for UK services, not least to the Asian market, which had hardly been touched by the GFC (essentially a North Atlantic Crisis). Current weakness in sterling is actually one of its strengths.
1979-83 marked the dramatic end of large-scale employers of skilled manual men in heavy industries. Just as 1989-92 would see families thrown out of their homes, 1979-83 saw proud men, consigned to long-term unemployment, or at best, poorly paid under-employment.
Chart 1 shows that my ‘timings’ of UK recessions – circled in red – based on UK labour market weakness, do not chime with the data for real GDP. Long-term data for real UK GDP does not align with what has constituted the UK’s chillingly real recessions of the past, while exaggerating the picture for others (2008-09).
