"It's a conundrum: central bank chiefs such as the Bank of England's Mervyn King and the US Federal Reserve's Ben Bernanke say the recession is over, yet unemployment on both sides of the Atlantic continues to rise rapidly, with Britain's jobless rate hitting a 13-year high of almost 2.5 million last week.
So what is going on? We have no proof yet that recession – commonly defined as two consecutive quarters of contraction in the economy – is over, although all the signs are that many major economies will return to growth in this quarter. In Britain's case, that will end a run of five quarters of shrinkage.
But, as King made clear last week, that is far from the end of the story – it certainly isn't time to plan a party, except possibly in some banks where the bonuses are flowing again.
The key thing to remember is that in this recession Britain has seen its total output of goods and services slump by more than 5%. So just because we may grow by, say, 0.4% in the July to September period, it doesn't mean normality has returned. It will take many quarters of that kind of growth to make up for all the lost output, hence it will be a long time before joblessness stops rising, let alone begins to fall.
There were, however, encouraging signs in last week's labour market data. The number of new redundancies each month has levelled out and the number of job vacancies has stopped falling although unemployment is likely to top 3 million next year.
So if the recession is over, what's to worry about? Plenty, and King was right last week when he said the pace of any recovery was "highly uncertain". His Bank monetary policy committee colleague David Miles said on Friday: "This is going to be a protracted period of a return to a more normal level of activity." He believes we may remain in recession for another six to nine months.
The latest lending trends report from Threadneedle Street, published last Friday, also made for alarming reading. It showed a record fall in bank lending to British firms in July. In spite of the taxpayer bailouts, banks are not keeping to their word that they would support a recovery. There have been huge efforts by the government and Bank of England to get banks lending again, but it simply isn't happening – making a sustainable economic recovery almost impossible.
Retail sales figures last week were also very subdued, suggesting people remain cautious about spending if they are worried about losing their jobs. Even those in secure jobs are preferring to pay off their debts. All these factors can weigh on the economy for several years, especially if whichever party wins the next election tightens fiscal policy too much and too quickly, as the Tories look likely to do. This is where the danger of a so-called double-dip recession comes from."
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