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Why a double-dip recession looms | Phillip Inman

Investors have ignored the warning signs – but what does a double-dip recession mean for the economy and the public?

A double-dip recession is just around the corner, which is another way of saying our national income is about to go down for the second time in three years.

How did this happen?

Technically, a country is in recession when its national income declines for two consecutive quarters. The last recession, which ran from April 2008 to October 2009, was worse than its two predecessors in the early 1990s and 1980s. Over this 18-month period output slumped by 6%. After a recovery last year, the growth rate has declined worryingly. In the six months around Christmas there was no growth and it was a measly 0.2% between April and June this year. All the current surveys of business health and confidence show the economy is contracting again. There is an expectation this will show up in the official figures for July to the end of September. A second quarter of contraction up until the end of December will mean we have tumbled back into recession.

Were there any warning signs?

The warning signs have been there for some time, but investors, who put their money into the stock market, are eternal optimists and have ignored them. Last week, the weight of evidence showing economic activity declining was too much, so they panicked and sold much of their investments. US investors were the biggest sellers. A recession is good news for some households and terrible for others. If you have a well-paid, secure job and own a home, you might ask what all the fuss is about. The government’s refusal to cut taxes or increase spending to boost the economy forces the Bank of England to keep interest rates low. Low mortgage rates lead to higher disposable incomes.

Who will suffer most?

Shops will suffer from a decline in consumer demand, as workers save rather than spend. This has already triggered a spate of shop discounts with more sales to come. But if you work in a shop, the construction industry or the public sector, or you depend on public services and benefits to maintain some semblance of a life, the downturn spells trouble. Even if you don’t lose your job, there will be more wage freezes and redundancies will mean extra workloads.

The government will suffer from lower tax revenues as more people are put out of work and spend less. The treasury will need to borrow more to make up for lost income. Borrowing more money to maintain services is where the government’s problems first started in the 2008 recession. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds