The recession is over . . . but you might not notice: Richard Thomson examines the history of our biggest post-war slump - and the snags that could slow the recovery

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The Independent Online
GEORGE WALKER, former boxer, former business tycoon, former symbol of Eighties entrepreneurialism, is now personally bankrupt. It happened last week. Three years ago he was on the crest of a wave, one of Britain's leading businessmen, his company expanding rapidly, apparently unstoppable. What stopped him, and a host of other business stars, was the recession.

It was the longest and, in some respects, the deepest recession since the Second World War. It began unexpectedly in the second half of 1990, when GDP (gross domestic product) - national output - started to fall just after hitting its boomtime peak. Unemployment rose 1.9 million (compared with 1.4 million in the early Eighties), and there were record numbers of businesses going into receivership, personal bankruptcies and house repossessions.

The end has come almost as suddenly as the beginning: the recession was officially over at the end of March when GDP rose for the second quarter in succession. It had lasted well over two years, compared with 12 months for the 1980-81 recession.

So what are we leaving behind? One thing is the wrecked credibility of the economists - inside and outside government - who consistently failed to understand what was going on. Hardly anyone noticed the recession starting. When they did notice, in 1991, most economists - including those in the Treasury - decided it would be short and shallow. We were assured that recovery was on the way in the spring of 1991, then again in 1992.

Britain became first cynical about the Government's economic forecasts and then stopped believing them altogether. Norman Lamont claimed that he could see 'green shoots' when there was none. His reputation has never quite recovered.

For the first time in living memory, London and the South of England were hit harder than the North. With the epicentre of the recession on their doorstep, the media reported it with a gloom that may have seemed exaggerated to people in places such as Scotland where it was relatively light.

But a series of massive business failures convinced the economists and journalists alike that something really serious was happening. British & Commonwealth and Polly Peck - creations of the Thatcher boom - collapsed in quick succession. The crashing of big companies became so common it seemed part of the background noise.

But the collapse of Robert Maxwell's empire made a bigger bang. Like many others he had borrowed heavily in the Eighties boom but could not service his debts when the downturn came. With inflation at around 10 per cent, the Government jacked up interest rates to reduce it. To keep his empire afloat, Maxwell stole pounds 700m from his companies and their pension funds to

cover his debts of pounds 3bn.

But even that did not work.

Heavy indebtedness also hit the personal finances of millions of Britons: large credit-card bills, mortgages and personal loans run up in the Eighties came back to haunt them. By the early Nineties consumer debt stood at a record pounds 30bn but the cost of interest payments doubled. The big spending stopped abruptly. Imports of champagne slumped from 21 million bottles in 1990 to 14 million in 1991. High-street sales began to seem permanant - but still the shoppers stayed away.

At the same time, the forests of 'For Sale' vanished as the housing market dried up. Rising house prices ceased to be the staple of dinner-party conversation. Prices started falling and people were less eager to talk about that. And prices kept on falling. Between 1989 and 1992 they slumped by about a quarter in London and the South-east, and nearly a third in East Anglia.

This was something new. In the past, property booms had been followed by periods of price stagnation, when high inflation and rising incomes eroded the relative value of property. This time, prices were declining while people's real income stagnated.

Thousands of home-owners were left with houses worth less than their mortgages. Those who could no longer afford the repayments could not sell their house, and, even if they could, the proceeds would not pay off the debt. Many simply dropped their keys through the door of their building society and disappeared.

This was not a traditional recession in manufacturing industry. It hit hardest in the service sector which had mushroomed, mainly in the South, during the Eighties. More than a million jobs were lost in areas such as financial services, retailing and property- related businesses. The price of second-hand Porsches and BMWs dropped sharply as redundant stockbrokers handed back their company cars.

In London, the unemployment rate rose to more than 10 per cent. The homeless sleeping in the shop doorways of the Strand became one of the images of recession-hit London.

Another was Canary Wharf, the tallest office block in Europe, standing empty. Its developers - once the biggest property group in the world - went bust last year after failing to find enough tenants to fill the massive building. There were already millions of square feet of empty office space in the heart of the City after the shake-out in financial services.

There is little prospect of filling all this space in the near future. Britain is emerging from recession with a huge current-

account deficit. Industry may not have suffered as heavily this time round, but the manufacturing base is still dangerously small. That raises worries over the scope for a prolongued upturn. The recession may be officially over, but it may not look that way for a long time to come. Welcome to recovery, 1990s style.

(Photograph omitted)