David Prosser: The real life recession will continue

Outlook: The end of the recession will not herald a return to the levels of prosperity many families enjoyed before the crisis began
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The Independent Online

Did anyone hear the sound of champagne corks popping while passing 11 Downing Street last night? Alistair Darling gets a sneak preview of the Office of National Statistics' quarterly GDP figures, so while the rest of us must wait until today for confirmation that Britain's worst post-war recession is finally over, the Chancellor got the data yesterday – maybe he even invited his neighbour round for a celebratory drink.

If so, the Prime Minister and his Chancellor may be disappointed by the political dividend the end of the recession delivers. While Labour will now campaign on Gordon Brown's record of having steered Britain through financial crisis and global economic downturn, for many people the recession is over in name alone.

For one thing, with tax rises having already begun to kick in and plenty more to come in April, many people's disposable income will actually be lower this year than last, particularly if interest rates rise more quickly than expected in the face of unexpectedly high inflation.

Moreover, the way in which the labour market has changed during this recession means that many people will feel the pain of the downturn for a long time after it officially ends. It's good news that unemployment has not risen to the levels some analysts predicted a year ago, but the headline figures mask some difficult realities.

The Chartered Institute of Personnel and Development says 1.31 million people were made redundant during the recession but that many have found new employment – crucially, though, two-thirds of those who are in a new job are earning less than they were previously. The average loss of wages is 28 per cent.

Remember, too, that while last week's unemployment figures showed welcome falls, they also revealed that the number of economically inactive people in Britain is now at a record high. So those who are finding new jobs are worse off and many people have opted out of the paid labour market altogether.

There are other reasons, too, why many people will barely notice the transition from recession to recovery. Pay freezes are likely to continue – at the least, wage inflation will remain muted. Price inflation, on the other hand, is becoming more marked, particularly on non-discretionary goods such as food, fuel and home energy. And unemployment may yet rise again – the public sector is under pressure to shed jobs. Certainly, public spending restraint will be the economic story of the next few years.

All of this means that the end of the recession will not herald a return to the levels of prosperity many families enjoyed before the crisis began. And Messrs Brown and Darling may find their political fortunes even tougher to revive than those of the British economy.