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Remember to read the small print
I have said many times before that we are genuinely in danger of talking ourselves into a recession. A review of some of the headlines in the papers over the last few weeks would seem to confirm that economic Armageddon is not just on the way but already here. My particular favourite was "House Prices in London to Fall 35%". Armageddon indeed. Except it's not true. If you had gone on to read the full story that followed this headline you'd realise that the newspaper concerned was merely quoting the views of the managing director of a very small estate agent's chain.
House prices are falling, slightly. This is serious and if it continues will cause increasing amounts of pain. But this is not to say that we're back to the 1930s as some people are trying to suggest. A cynic might suggest that perhaps such headlines are written by those with a political agenda. But as I am not a cynic...
In any event even respected news channels are churning this stuff out so where do you look? Actually, in most of the quality press and on decent TV news programmes if you look behind the headline there is usually a more balanced presentation of the facts.
The housebuilding industry is in trouble - no doubt about that - but construction generally is going on as before. The banks are hurting badly. And so they should. Through their incredibly stupid lending which caused house prices to boom in the first place, we are now experiencing a residential downturn that may yet cause a crash. However, as gleeful as I am that these stupid and greedy organisations are suffering, unfortunately their pain will be felt by us all.
Desperate to recover their margins, bank charges and interest rates are on the up. This is causing the much-heralded credit crunch, the very thing that is causing their pain. I also read last week that there is to be a change in the law to allow those formerly declared 'idiots or lunatics' to stand for parliament. You mean they weren't until now? Clearly a law that has not been enforced very well. I would venture, though, that perhaps a new law preventing such people running banks might be in order.
Perhaps I am being unfair because there are bad things going on in the world that are not really the fault of home grown problems. The banks and our government are not responsible for high oil prices, which are having a very bad effect on the economy. High food prices are, in part, a problem caused by our government and those of like-minded countries by taking land out of food production to make biofuels. What's really interesting here, something that was very fairly argued by the BBC last week, is that it is our supermarkets that are doing most to keep the lid on food prices. Let us hope the journalists remember this when they have another Panorama/Dispatches type of programme condemning the supermarkets for everything else.
What our government is responsible for is the appalling state of public finances and much of the credit crunch. It was idiotic to allow banks to lend on 120% mortgages and lunacy to get into debt during the good times meaning that government spending will have to be cut back during the bad times when tax receipts fall.
My remit for this article is of course not to just rant. It is to give an informed opinion on whether or not the country is going into recession. Once again, I am pleased to say, no it is isn't. Never mind what some of the papers say or what disgruntled estate agents will say to the press in order to get good coverage. The International Monetary Fund (IMF) believes that Britain will escape recession but that we are in for a period of slow growth. Unemployment will rise but not as badly as we have seen in the recent past and that consumer spending will stay flat.
That isn't great news but you don't need to think about leaving the country yet. We have some scary months ahead but downturns, like recessions, do not last forever. Only if oil prices rise even further or even worse things happen in America will my view change about a looming recession. In the meantime, don't just read the headlines.
Note: A recession is when the economy actually gets small for two quarters in a row. It last happened in 1991.
