The boom will go bust: here's how to brace yourself

the next recession

Share
Related Topics
Amid the truimphalism of Brighton, remember that this will be the Government that is in power during the next recession.

It is almost impossible to imagine at the top of a boom that there will be another recession, just as it is very difficult to imagine at the bottom of a slump that there will be another boom. Think back 10 years. We were less than three weeks away from Black Monday, the stock market crash. True, that had little immediate impact on the real economy, for the great housing boom of the summer of 1988 was still to come and there was to be another couple of years before the early 1990s recession hit home. But think of the mood that autumn - a newly-elected, confident government telling us that there had been a step change in the performance of the British economy, soaring consumer confidence, strong house prices, low unemployment - and it is not difficult to see a parallel with the present. Anyone with any sense of history (or even a half-decent memory) will feel a certain unease.

The trouble, of course, is that things are never exactly the same. There is such a thing as an economic cycle, but each cycle is different in its shape. The world economy is also hit by shocks, and each shock is different too. So it is impossible confidently to predict that there will be a deep depression during the early years of the next century - any more than that there will be a stock market crash in the next couple of weeks. But one can say with a pretty high degree of certainty that there will be a sharp slow-down in the world economy at some stage in the next four years; and one can say, with reasonable certainty, that it will start within the next couple of years. The present good times will roll on for a bit, but they will not roll on for ever.

In what ways might the next cycle be different from the previous ones? For a start I don't think it will be preceded by a surge in inflation, or at least not the sort of surge that preceded the early 1970s, the early 1980s or the early 1990s recessions. It seems pretty clear that the long- term trend in inflation worldwide is down, and that the forces which have been driving it down for the last 15 years will remain in place.

Next, looking at the impact on the UK, the recession will have its most serious effects on different sectors of the economy. In the early 1980s the manufacturing sector was most severely hit, for the slump was associated with very strong sterling, causing damage to exports. In the 1990s it was the property sector, for that was the most over-borrowed part of the economy when interest rates shot up. Now manufacturing is lean, property wary, and next time the pain may in any case be more evenly spread. Still, I would worry about parts of the economy which seem particularly buoyant at the moment: areas like entertainment and finance. I suspect, too, that the next recession may see a greater squeeze on the public sector, as tax revenues fall and governments are unwilling (maybe unable) to borrow so much to cover the gap.

But I suppose both the greatest uncertainty and the most important influence on the shape of the next recession will be the shock or shocks that trigger it. Recession tends to be accompanied by higher interest rates. In the 1970s and 1980s there were the two shocks which bumped up inflation which then had to reined back by high rates; in the early 1990s (for Europe at least) the surge in rates was associated with the costs of German reunification.

While shocks, by definition, are unpredictable, you can see some candidates looming. For example, I'm not sure that we have yet seen the full impact of the loss of confidence that has taken place in East Asia since the summer. That is probably not big enough to affect the whole developed world, but it will be pretty rough for Japan, the big economy most closely affected. Here in Europe there will be the "euro" shock - disruption associated with the new currency, if it happens - or, in a rather different way, if it doesn't. While, in the long-term, a single European currency might bring economic benefits, in the short-term there will be considerable costs.

Then, for the world as a whole, there will be the millennium bug, the need to re-program computers to cope with the year 2000. Rationally, that ought not to be a shock at all, because we know that the year 2000 will happen. It may pass without any dire effects on the world's computers, but it is at least possible that there will be business failures as a result of companies not being paid. Intellectually it is ludicrous that there should be a problem at all, but we simply don't know.

Shocks being shocks, though, the thing that unsettles the world at the end of the century will probably turn out to be something that has never even crossed our minds.

So what should we do? High-falutin' stuff about macro-economics from journalists is about as useless as enthusiastic self-congratulation from politicians. What should ordinary people do to prepare themselves for harder times? I suppose the practical message is that people should seek to make their finances and their jobs as bullet-proof as possible while there is still time.

This would be a Puritan message. People should save now, setting aside cash in different forms so that if, say, the stock market does tumble, they will not suffer unduly. They should assume that, come retirement, they may have to rely largely on their own pension, rather than one paid for by the next generation of taxpayers. They should try not to borrow unnecessarily. They should be aware that no job is safe, that within a couple of years the unemployment rate will start rising again, and that accordingly they should build their skills and qualifications now to improve their chances of retaining a job later.

Not a lot of fun? Not quite the spirit of Brighton? Of course Tony Blair warned of hard times ahead but I don't think recession was quite what he had in mind. The really hard bit is remembering that the world at the top of the boom is a very different one from the one at the bottom of the slump.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
iJobs Job Widget
iJobs General

Recruitment Genius: Senior Environmental Adviser - Maternity Cover

£37040 - £43600 per annum: Recruitment Genius: The UK's export credit agency a...

Recruitment Genius: CBM & Lubrication Technician

£25000 - £27500 per annum: Recruitment Genius: This company provides a compreh...

Recruitment Genius: Care Worker - Residential Emergency Service

£16800 - £19500 per annum: Recruitment Genius: Would you like to join an organ...

Recruitment Genius: Senior Landscaper

£25000 - £28000 per annum: Recruitment Genius: In the last five years this com...

Day In a Page

Read Next
Labour's Jeremy Corbyn arrives to take part in a Labour party leadership final debate, at the Sage in Gateshead, England, Thursday, Sept. 3  

Jeremy Corbyn is here to stay and the Labour Party is never going to look the same again

Andrew Grice
Serena Williams  

As Stella Creasy and Serena Williams know, a woman's achievements are still judged on appearance

Holly Baxter
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones