Not so good

Since the words ‘credit crunch’ entered the public lexicon last summer, many politicians and pundits on both sides of the Atlantic have maintained a state of blithe denial about the economic danger signals that were increasingly apparent. But this week, amid worldwide stock-market turbulence, some painful truths have been confirmed.

In Washington, the Federal Reserve acknowledged the threat of a sharp downturn and possible recession in the US with an emergency interest rate cut of three quarters of a per cent. It was the biggest cut for almost 25 years, and it seems, for now, to have succeeded in its immediate aim of averting a Wall Street crash. But it was also seen as a panicky admission that the real state of the American economy is even sicker than was widely supposed. That sense of unease has led to calls for further rate cuts, perhaps even as soon as the Fed’s regular monthly meeting at the end of January.

In a speech in Bristol on Tuesday, Mervyn King, the Governor of the Bank of England, confirmed what many of us have felt in our bones for months, but ministers have done their best to deny: that the British economy faces significantly slower growth and above-target inflation, ‘a not-so-good period’ as the Governor put it. Over here, says Mr King, the situation is not so severe as to require Fed-style drastic rate cuts. But still we must expect harder times than we have experienced since the early 1990s — in which, at the very least, household budgets will be squeezed, the feel-good factor conferred by ever-rising house prices will be forgotten, and businesses of all sizes will suffer from falling consumer activity and tighter credit conditions.

The loss of confidence provoked by those factors is already exacerbated by a widespread and profound loss of public belief in the competence of Gordon Brown in matters of economic management — the supposed skill on which he based his entire job application to be Prime Minister.