Britannia Radio

Final pieces in jigsaw of doom drop into place

By Jeff Randall

Last Updated: 11:27pm BST 26/08/2008

If, like me, you are a sad addict of financial punditry across all media (I particularly enjoy some of the more eccentric websites), you will know there's currently an acute polarising of opinion between the Micawbers, who think that we're over the worst and foresee recovery next year, and those at the other end of the compass, busy filling cellars with tinned food and Evian.

The divide tends not to follow conventional political lines. Neither Left nor Right claims a monopoly on the likelihood, or otherwise, of apocalypse. The chief executive of a clearing bank tells me that he has never seen such marvellous "opportunities". By contrast, a leading City stockbroker grumbles: "No change. The godawful bear market goes on and on."

Government and its supporters are obliged to talk about Britain being well placed to weather the storm. They have to say that - don't they - or be forced to admit that Gordon Brown's stewardship has done for our economy what the crewmen on the bridge achieved for the Titanic. Against the grain of common sense, ministers cling desperately to Alistair Darling's Budget Day fantasy of 2.25pc-2.75pc GDP growth in 2009.

There are, however, plenty of liberal-Left observers who fear, and expect, an economic train wreck. Larry Elliott, a voice of reason at The Guardian, wrote of Britain's prospects last week: "Weak and almost certain to get weaker... there is nothing to fall back on... [it is] probably too late to avoid the two quarters of negative growth that constitute a technical recession."

Across the Atlantic, Paul Krugman, economics professor at Princeton and self-confessed "progressive", comments in The New York Times: "We've been experiencing a slow-motion meltdown...what we're suffering really deserves to be called a recession... there's no end to the pain in sight."

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Elliott and Krugman, though engaging, are hardly my fellow travellers: they belong in the tax-and-spend school of social solutions. Nevertheless, I do not doubt their forecasts for the economies within the Special Relationship. As Krugman said of the US (it applies no less to Britain): "Things will probably get considerably worse before they get better."

For those of us who began warning about the new millennium's debt boom long before "credit crunch" earned an entry in the Oxford English Dictionary, watching Britain and America slide into economic mayhem has been like observing a group of heavy smokers insisting that fears about lung disease are overdone. There is a dangerous lag between inhaling and infection.

Until this year, the missing pieces in the doomsayer's jigsaw were falling house prices and rising unemployment. No matter that consumers on modest incomes were piling up credit-card obligations, taking out mortgages on five, even six, times their annual salaries, and redefining "affordability" to mean servicing rather than repaying debt, as long as house prices defied gravity and jobs were not vanishing, nobody wanted to hear alarm bells.

When the house-price bubble finally burst, it left last-minute players on Britain's mortgage merry-go-round - those who had borrowed the maximum to buy at the top of the market - betting their futures on staying in work. All would be well, as long as the pay cheques kept coming.

Unemployment has been slow, as it often is, to reflect fast-deteriorating corporate prospects. For a while, in the early stages of a downturn, companies tend to hoard labour in the hope that there will be a quick pick-up. When none arrives, they are forced to confront the personal and legal discomfort of chopping large numbers of workers.

This is the train that's hurtling down the track on which are tied hundreds of thousands of homeowners, lashed to the rails by unsustainable mortgage commitments they cannot undo. When the inevitable occurs, it will be bloody.

In case you missed Monday's news - you probably had better things to do on a bank holiday than trawl through the business press - allow me to pass on a report in The Financial Times: employment lawyers and legal helplines are experiencing a sharp rise in businesses seeking advice on how to sack staff. Ding dong! This is your wake-up call. The final piece in the jigsaw of gloom is about to drop into place.

The British Chambers of Commerce, which has been more alert than rival employers' groups to Mr Brown's mismanagement of the economy, predicts up to 300,000 fresh job losses. It sees unemployment breaking through the 2m mark if conditions continue to deteriorate.

I'm sure they will, not least because having wasted so much on crackpot welfare schemes, Labour has emptied the piggy bank and cannot afford to absorb the slack through more increases in public-sector employment.

With disposable incomes falling for the first time since 1997 (mortgage payments, taxes, fuel costs and food bills are rising sharply), the Prime Minister's private prediction that the corner will soon be turned looks even less credible than his Chancellor's assertion that taxpayers will get all their money back from Northern Rock.

According to the Bank of England's deputy governor, Charles Bean, the shocks impinging on Britain's economy are, "at least as challenging... as back in the 1970s". I lived through those calamitous times and, to be fair, today doesn't feel half as bad (the lights aren't out - yet). But the full horror of the Brown boom-to-bust is still emerging. Who knows, with the trade unions threatening a return to militancy, we may soon be searching for candles.

Having spent time at the Olympics, the Prime Minister cannot fail to have noticed that a distinguishing feature of many medal winners was their timing. They knew instinctively when to make the all-important move. By contrast, many of the competitors who failed to live up to expectations seemed not to recognise the moment of maximum impact.

Mr Brown's moment came and went last autumn, with the election that never was. From here, not only will he fail to achieve gold (victory at the next election), he's long odds against even completing the race.