Time to pay the bill

You can take at least a little bit of comfort from the Bank of England’s statement today that the UK economy is now in recession.
How come? It’s merely confirmation of what quite a few people in business were saying weeks ago. So we have completed at least a part of this unpleasant journey already.
Sales of homes and cars slowed to a crawl a while ago, while those businesses that aren’t making people redundant are probably not filling vacancies. Not nice.
If a business knows that things are sticky it can at least deal with a problem it can see. It’s what businesses can’t see that’s bothering them - and causing a lack of confidence that is in itself contributing to slowing business activity.
This was the point made by Richard Lambert, the learned and thoughtful director general of the CBI, when he popped into the Evening Post offices yesterday.
“I do feel that confidence is at least as big a contributory factor, especially for business sector. When you talk to companies they feel they are still doing OK, their balance sheets are in good shape, but they are worried about the unknown unknowns - what might be coming next."
So, what might be coming next? Not a lot of credit, that’s for sure. Lambert produced some eye-poppingly scary figures about how much consumers over-borrowed when I spoke to him, and made a powerful point that businesses are suffering because of personal profligacy.
Stop and think about this: in 2002, what UK consumers borrowed was pretty much the same was what we all put away in savings. In other words, the money was already there to fund our lifestyles.
And today? At the start of this year, what we borrowed raced ahead of what we saved by a thumping great £700 billion. Fine while property prices are rising, but a massive deadweight dragging on the economy when they're not.
This is why Lambert refused to join in the ritual condemnation of banks.
“The really high ‘gearing’ has been in the household sector. It’s not businesses that have been running big bank debts – it’s families.”
So, we’re in for a pretty rough six to nine months now as the economy shakes off what it can no longer afford. Recessions are unpleasant, and that shake-off will include businesses closing and people losing jobs.
But just how did an economy that was speeding along merrily not so long ago end up in a car-crash like this?
The banks didn’t help, for sure, but there was a rather large economic lesson we appear to have completely forgotten: what goes up must come down.
“Its is more about a collective loss of memory,” said Lambert. “A generation has had a long period of steady growth and low inflation, forgetting that business cycles do come to an end and that when they do it can be jolly uncomfortable.”
It is rising unemployment, also in the news today, that we should be uncomfortable about.
Not just because of the damage it does to ordinary people, but because it knocks already weak consumer spending, causes further banking problems and makes it that much harder for businesses to get going quickly when the economy – as it eventually will – starts growing again.
If businesses are going to cut jobs they have got to think long and hard about the implications.
It's this issue and all the implications it carries that will be occupying the minds of Gordon Brown and Alistair Darling as they build up to the pre-Budget Report on Monday 24th November.