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

the next recession

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

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Ashdown Group: Project Manager - Birmingham - up to £40,000 - 12 month FTC

£35000 - £40000 per annum: Ashdown Group: IT Project Manager - Birmingham - ...

SThree: Recruitment Consultant - IT

£25000 - £30000 per annum + Uncapped Commission: SThree: Sthree are looking fo...

SThree: Trainee Recruitment Consultant - Dublin (based in London)

£20000 - £25000 per annum + commission: SThree: Real Staffing's Pharmaceutical...

SThree: Trainee Recruitment Consultant

£18000 - £25000 per annum + Commission: SThree: Are you great at building rela...

Day In a Page

Read Next
Question time: Russell Brand interviewing Ed Miliband on his YouTube show  

Russell Brand's Labour endorsement is a stunning piece of hypocrisy

Lee Williams
IDF soldiers and vehicles in an image provided by campaign group Breaking the Silence  

'Any person you see – shoot to kill': The IDF doctrine which causes the death of innocent Palestinians

Ron Zaidel
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before