Britain is apparently due a recession; they normally come every eight years and we haven’t had one since 2008. Analysts are predicting that bad economic news from China could lead a run-of-the-mill recession or even a full-blown financial crisis. On the eve of a potential economic storm the introspection of the Conservatives and Labour leave them ill-equipped to face it.
Bank of England chief economist Andy Haldane has argued that the coming recession should be viewed as the third part in a trilogy comprising the Anglo-Saxon financial crisis of 2008, European currency crisis and now the emerging market crisis. However, a better analogy is to view it as a third act in a tragedy – or perhaps a comedy depending on your view point – in which the characters must finally face the predicaments they were plunged into in the the first act.
For UK politicians the challenges caused by the crisis of 2008 have barely changed; eliminate the budget deficit, rebalance the economy away from financial services, reduce consumers’ reliance on unsecured credit and fix the housing market. Although the economy has been growing and private sector job growth impressive (though offset against a surprisingly low tax take), in eight years limited headway has been made against the other objectives.
One argument is that the British economy faced a structural crisis in 2008; it was fundamentally broken. An economy built on financial services and consumer spending made possible by cheap credit – fuelled by an inflated housing market – was no longer workable, if it ever had been. For many households wages had been stagnating since 2004 and productivity was, and remains, poor compared to other European economies.
Despite rhetoric to the contrary – most famously the call for a ‘march of the makers’ – the economy was essentially patched-up by the previous and current Governments and has limped on in much the same fashion as before, with the additional challenges of significant public spending cuts and a Eurozone crisis.
A recession would exacerbate the existing problems at a time when the Government has no tools with which to fight it. We would likely see a growing budget deficit, additional public spending cuts, a continuing squeeze on incomes, another squeeze on consumer spending and further erosion of the manufacturing base (which is arguably already in recession).
On top of this the UK faces a referendum on its membership of the EU, most probably in September. This could be against the backdrop of two crises that would be exacerbated by a recession – migrants and the Eurozone – that EU institutions have repeatedly demonstrated they are wholly unable to address, increasing the chances of a vote to leave.
Against this backdrop Westminster also faces its own challenges; Labour remains locked in its own civil-war between its leadership, MPs and grassroots, that may yet see its leader deposed after the May elections. If a new crisis were to arrive it is unclear whether Labour would be in a position to put forward, let alone coherently argue for, an alternative economic policy whilst scrutinising the Government.
Meanwhile the Conservative majority remains slim and it has been confirmed that Ministers will campaign for different sides for the EU referendum, threatening to resurrect damaging schisms of the past. It also threatens to distract the Government at a time when an economic crisis would fundamentally undermine its Long Term Economic Plan, potentially force the resignation of the Prime Minister and prompt calls for independence referenda across the UK.
For now the world watches and waits to see how events will unfold in China. The worst case scenario will probably not come to pass; yet neither the Conservatives nor Labour appears ready to face even a mild economic storm. With the central banks’ unconventional monetary tools – Quantitative Easing and record low interest rates – exhausted and no BRICS to pick up the slack in the global economy, there will be no deus ex machina to ride to the rescue this time around.
the P in Politics 