The global economic meltdown

Harvey Jones is starting to feel hopeful again. Find out why.

As once-in-a-generation global economic meltdowns go, this one hasn’t been too painful. Commiserations if you’ve lost your job, or are struggling to live off your savings, because I know times are tough for many, but this hasn’t been the horrorshow that many analysts were predicting a year or so ago. Some people have done quite well out of it, notably homeowners on variable rate or tracker mortgages, who are saving hundreds of pounds a month thanks to rock bottom interest rates.

When the credit crunch first struck, people were predicting all sorts of woe and affliction. House prices were expected to fall by 30% or 40%. The FTSE 100 was tipped to fall below 3000 and take years to recover. Unemployment was set to hit 3.5 million. The government was projected to borrow £178 billion this year alone. The nation was going to be scarred for a generation.

• Watch our video: Britain's mortgage timebomb

It’s not exactly the Great Depression

So what happened? House prices rose 6% last year. The FTSE 100 benchmark index is up more than 75% from its lows in March 2009, and could hit 6000 at some point in 2010. Unemployment fell 33,000 in the three months to January, to “just” 2.45 million. The government is set to undershoot its public borrowing projection by anything between £5 billion and £23 billion.

Even the part-nationalised banks are bouncing back, with Lloyd’s forecasting a profit this year, and RBS next year. Their share prices have rebounded, raising hopes that taxpayers will get most of our money back, and maybe even turn a profit, once the government starts selling sell off its stakes in the banks.

Doomsday has been postponed. The banking system didn’t dissolve, the pound hasn’t completely collapsed and the government can still raise money on the bond markets. We have so far escaped deflation, inflation, hyper-inflation and stagnation. All of these things could still happen, but so far the doomsayers have been proved wrong again and again. Have the pessimists got it wrong?

The bad old days

I vividly remember the 1981 recession. Every day the news brought us job losses, factory closures, boarded-up shopfronts, and riots and social disorder. The current recession has seen an relatively larger drop in GDP, yet it hasn’t hurt as much. Why?

Back then, Prime Minister Margaret Thatcher and Chancellor Geoffrey Howe decided that tough medicine was needed to get the UK back on its feet, and we coughed and hacked our way back to recovery. This time round, the government and central bankers have soothed us with syrups and sweets, in the form of banking bailouts, stimulus programmes, 0.5% interest rates and quantitative easing. Gordon Brown and Alistair Darling have borrowed, borrowed and borrowed. And so far it’s worked. This is a soft recession. A gentle recession. A phoney recession, at least compared to the one we expected.

Flex marks the spot

It helps that people are more flexible these days. Plenty of people have gone back into education, hoping to return to the job market in better times. Others are taking part-time posts, rather than simply signing on. As a freelancer, I’ve taken rate cuts and watched my income splutter as editors saw their budgets slashed.

As our reward, we can expect the phoney recession to last a little bit longer. At least until 6 May, the most likely date for the next election. Until then, the happy medicine will keep flowing down our throats, because politicians want us fully dosed-up when we sleepwalk into the polling booths, rather than wheezy and spitting blood, and voting for somebody else.

After that, things are set to get tougher, as the new administration hikes taxes and cuts public spending to avert a currency crunch and all sorts of nasties.

Do you feel lucky? Well do you?

Many claim that that is when the real horrorshow will start, but I’m not as pessimistic as I was. The doom-mongers have been predicting terrors and torments for so long, that I’ve become immune to their ravings. There are still plenty of threats out there, of course, including a UK credit downgrade, Chinese asset bubble, Greek-induced eurozone meltdown and five more years of Gordon Brown (with his crony Ed Balls as Chancellor - agh!), but if we have made it this far, perhaps we really can see it through to the other side.

What do you think? Let us know your predictions using the comments box below!