Why the economic recovery makes me nervous!

Spring is in the air, green shoots are bursting out of the barren economic ground, but Harvey Jones is more worried than ever!

Happy days are here again! After months of doom and gloom, the economy has suddenly given us a rare glimpse of spring.

Property sales have hit an 18-month high, with the average asking price rising a sunny £5,000 in four weeks to £227,441.

The Council of Mortgage Lenders has admitted its estimate that 75,000 people faced repossession in 2009 was too pessimistic, given that just 12,800 suffered that fate in the first quarter.

And now the FTSE 100 is up nearly 30% from its March lows.

All that sounds jolly good. So why do I feel so anxious?

Too much, too soon.

Instead of celebrating, I feel more nervy than at any time since the collapse of Lehman Brothers last October.

When that disaster struck, we all knew what to do. We hunkered down, hoarding our pennies, paying down our mortgages, shopping at Lidl and clinging on to our jobs.

Now finance professionals are suddenly lining up to tell us the worst is over. House prices are up! A new bull market is roaring! Savings accounts are paying over 4%! Repos are down! Jobless figures are better than expected!

And I don't know how to react. It's good to hear positive news for a change, but I just don't trust it. I feel it is too early to strip naked and dance gaily in the fields, because a few green shoots do not a glorious summer make.

Brace yourselves

We are still, after all, in the middle of the worst recession since the Second World War. The figures may have improved slightly, but only from horrendous to very bad.

Just because somebody stops banging your head against the wall every five seconds and bangs it every 10, doesn't mean life is great.

And the economy still has plenty more bad news to swallow. Unemployment may still top 3 million, which could strangle any house price recovery at birth.

We might still face another banking shock. The IMF has warned that the global financial sector faces another $3 trillion of losses before the crisis can be considered over. I won't sleep easily until those toxic assets have been mopped up.

And the situation seems to be getting worse rather than better in central and eastern Europe, where the rampant debt crisis could torpedo western European banks.

It wouldn't do much for the UK either.

A long way to go

Even if we do avoid another crash, recovery will be a long, slow haul. It will involve higher taxes, lower pay rises, cuts to frontline public services and greater job insecurity.

It might also involve inflation, if politicians see this as the only electorally acceptable way of shrinking their debts.

Nor can we expect a return to easy borrowing or double-digit house price rises (mercifully), given the regulatory shackles to be placed on bank lending, and the fact that the next generation of first-time buyers is likely to be crushed by student debt.

Let's be careful out there

Nor have the banks suddenly turned into paragons of good practice and fair-minded lending.

They may have gone easy on repossessions this time round, but only under intense pressure from their main shareholder, the Government.

And they are shamelessly exploiting us to repair the holes in their balance sheets. The average SVR is now 4.19% above base rate, compared to just 1.9% this time last year. That's 120% higher.

So tread carefully, because rip-off Britain has survived the credit crunch in depressingly rude health.

Keep calm and carry on

Now more than ever we need to Keep Calm and Carry On, because if we get over-excited another banking crisis could hit us like a hammer blow.

My advice to you is to keep on hoarding your pennies. Or rather, save what you can, preferably in an account that feels it is polite to pay a little interest.

Keep paying down your mortgage. It may be cheap now, but how will you cope when the Bank of England start raising base rates again? 

If you can stand the risk, invest a little also, in case the bull market continues and you miss out altogether.

Continue living within your means, whether that means hunting down online bargains, growing your own vegetables, or becoming a slave to lovemoney.com's Frugal Friday.

And if you have clung onto your job, be grateful.

Clocking off

I really am doing my best to enjoy the recovery, but I can't help but be edgy. As John Cleese said in his film Clockwise: "It's not the despair. I can stand the despair. It's the HOPE that gets me."

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