With home sales stagnating, exports dropping and investment being cut back, companies have little option but to attack costs, first among which is labour. The wave of redundancies sweeping through business is the result. Today's unemployment figures are expected to show a further rise of 40,000, bringing the total increase since March 1990 to nearly 1.3 million.
What has gone wrong? Businesses which had hoped for a post-election recovery found that their products were merely accumulating on the storeroom shelves. As managers came back from holiday, they confronted the need to cut output sharply back into line with sales. For a time, they even have to cut production more sharply so that they can reduce stocks. Such is the viciousness of the stock cycle.
But businesses' attempts to control stocks is only a part of the story. There has also been a new downturn in Britain's main export markets. German industrial production began dropping in March. France, like much of the continent, is in recession. In the United States, President George Bush looks like losing the election because of the recovery which never was. British export volume fell by 3 per cent in August, and there may be worse to come.
The root cause of Europe's malaise was the supercharging of the German economy brought on by unification. Faced by soaring public spending, and demand which outstripped supply, the Bundesbank ratcheted up interest rates to their highest levels in 30 years. The rest of Europe, tied to the mark by the exchange rate mechanism, applied a monetary lash ill-suited to their increasingly sick economies.
But Britain's economy also faces fundamental problems which would have meant a long-drawn out and painful recession even if the world outside were buoyant. The high debts incurred during the property boom, particularly in London and the South-east, have come back to haunt us.
Interest rates are lower than in France or in Germany, but our interest payments take twice as much of household incomes as they do in France, and five times as much as in Germany. The fabled 'Thatcher miracle' was the pleasant sensation which occurs when you spend more than you earn. The Major hangover is when you have to repay the money - and spend less than your income.
What can be done? Another economy with similar debt problems - the United States - shows that there are few rapid solutions. US interest rates have been cut to just 3 per cent to kickstart the economy, and the dollar has dropped by a fifth, but to no avail.
There is now a clamour for a similar strategy in Britain, but the dangers are far greater. Any devaluation raises import prices. But because we are a medium-sized economy which imports far more than the US, devaluation feeds through more rapidly into inflation. If the markets were to take fright, pushing the pound into free-fall, interest rates might end up even higher than they are now.
The most important lesson is surely not to worsen the recession by tightening any form of economic policy: big public spending cuts, redundancies in public sector industries like coal, and tax increases, merely dig a deeper hole. Public works like the Jubilee line and the East-West crossrail would be cheap because building prices are a fifth below their peak in 1989.