What would be the political fallout from another recession?

What would be the political fallout from another recession?

Henry G Manson weighs up the options

I’ve lived through enough recessions to know the misery it brings hundreds of thousands of individuals, homeowners and business owners. There is something psychological damaging for a country to be in recession. It can feel something akin to a foreign occupation with a skyfull of dark clouds overhead. That is why the last quarter’s 0.5% growth figures were important. Any improvement on expectations must be welcomed and I think Labour should have given a much more positive response than they did – no matter how limited the figures are in the scheme of things. They matter to people and the national mood.

However I have been alarmed to pick up from a couple of economists I take seriously of the real possibility of the next two quarters could well see ‘negative growth’ in the UK economy.

They point me to a report from the National Institute of Economic and Social Research who believe there’s somewhere in between 50-70% of an imminent UK return to recession. Manufacturing is also apparently in downturn with reports that UK manufacturing orders have ‘dropped like a stone’. Another recession would come as a shock and is not part of the script. It’s therefore worth us considering for a moment how this might alter the political battlefield in the months ahead should this occur.

Should the worse-case scenario take place then the recession would be confirmed on the 25th April 2012 – just 8 days prior to local and mayoral election day and during a crucial period of voting and campaigning.

Mike raised the 1970 general election recently and of course last minute economic findings played a role in that election too. Who knows how exactly they will play out with less at stake and on a smaller turnout…but it would hardly be good news for Boris Johnson would it?

There would be challenges and risks for each party. I think the government will adequately explain away the return to recession as a result of global and Eurozone difficulties – as long and the majority of Europe joins it in negative growth. But Ministers would be on the back foot in the run up to those May 3rd elections in a way they’d clearly prefer not to be.

Already there are one or two Lib Dem grassroots figures want their party to move well away from Osborne’s deficit reduction strategy. They are currently small in number but with the yellows fighting for their lives once again in local elections I think there’s a fair to good chance more could join their cause if the economy’s growth declines.

If either of fellow G8 countries France and Germany somehow avoid a double-dip recession while we don’t then the Government will be in trouble. That intuitively seems an unlikely situation. Instead I think the most likely cost to the government will be that most people think most about the latest recession. So in effect it will draw a line under much of the earlier debate around the causes and blame for the 2009 recession. Instead we’d see a European dimension of blame and a likely increase in Cabinet tensions over Europe. The chief outcome will that it will be far harder for the Coalition charge that the credit crunch was ‘Labour’s mess’ to resonate from then on. People will rightly expect the Government of the day to focus on the current crisis and not keep fighting the last war.

For Labour the risk is that if they try and pin the bulk of the responsibility of a new recession entirely on the shoulders of the Coalition government then there’s a good chance the public won’t just buy anything they say.

Even though there’s reasonable evidence that the lack of domestic demand is causing problems, Ed Balls in particular has to keep measured and try his hardest to adopt a statesmanlike pose. Not a given. Worse still, if a sense of vindication translates into self-satisfaction. This would be voter-repellent. Labour needs to find a way that recognises the obvious global factors but also saying the squeeze in living standards by the pace of George Osborne’s policies has weakened the UK’s resilience.

Recessions are awful. Let’s hope it’s a long, long time before there is another one. Osborne has some opportunity later this month to do more to assist growth. Benedict Brogan suggests that even some senior Conservatives believe ‘the Chancellor’s department is itself in need of a kick’. The stakes are massive for the Chancellor. Should the doom-monger economists be true and recession returns to the UK then it is likely to have a significant political impact for months and even years to come.

HenryG Manson @henrygmanson

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