The spectre of depression

There is a range of forecasts of the extent of recession this year, the quarter by quarter , month by month falls in output of the UK economy.

What we do know is that the second half of 2008 saw a reduction in GDP of 2.1%, and we know from the rapid rise in unemployment latterly that the next six months are likely to see a much higher figure. Already forecasts are suggesting a fall in GDP during 2009 of upwards of 5%, for the year. When the figure has risen to 10% we shall be by definition in a depression.

Virtually no-one, even the Chancellor himself I suspect, believes the Chancellor's prediction in November that recovery will begin from June 2009, despite the attempts of ministers seeing light at the end of the tunnel or green shoots of recovery.

There are forecasters who think that we shall comfortably avoid depression, and their position is not ideologically or emotionally determined. What they must agree, however, is that we shall be carrying a massive amount of debt, that there will be deteriorated assets in some of our heavy industries and some important industries will have declined relative to those in other countries, especially London as a financial centre. In addition our banks will have become largely socialised and probably less sympathetic to risk, entrepreneurship and uncertainty.

It could be close run thing!