Its too quiet out there

The BBC has just run an article on its Magazine pages commenting on how moderate we have all been in the face of the recession. It argues that counter to the early press speculation of widespread strikes and social break down we have all been remarkably calm and well-tempered in the face of earnings declines and the falling economy. We are apparently the "heroes" of this recession.

But the point about this recession is that for many people they have not yet really felt it. I exclude obviously the communities that have lost major employers, and the swathe of people who find themselves out of work. For some individuals it has already been a bitter experience. But - on average - employment has so far held up better in this recession than expected and for those still in paid work the world looks far less bleak.

Why?

Interest rates.

Given that housing cost is typically the largest single item in the household budget the era of extraordinarily low interest rates means that many people on a tracker mortgage have far more money in their pockets than a couple of years earlier. And those who have lost their jobs can survive in their homes for longer despite the loss of income. Hence a housing market that continues to defy gravity.

All well and good - but unless the global economy speeds up and the low pound means that we can take advantage of this (tough given the state of our manufacturing economy but it will help the business services sector) then it makes the reckoning next year potentially fearsome.

I fear that an incoming Tory Government will want to get the pain of spending cuts and tax increases out of the way as early as possible in the electoral cycle (when it can still be blamed on Labour and giving them the chance of some years of growth prior to the next Election). At the same time Quantitative Easing will have to come to an end (free money cannot last forever). And suddenly all the various tax rises already planned will kick in (the return to the old level of VAT, the new 50p income tax band) and the property market will tank. Cue panic.

I am painting a dark scenario but the point is that its far too early for the BBC to be smugly congratulating us all on our good behaviour.