Why we've never had it so bad (since 1980, that is)
Updated on 23 January 2009
We already knew the UK was in a recession, but it is the scale of Britain's downturn which has taken everyone by surprise today.
Worst expectations had Gross Domestic Product (GDP) falling in the fourth quarter by twice that of the previous one: in other words down by about 1.2 per cent.
So a drop of 1.5 per cent underscores just how dire things have become - and how rapidly.
Things have not been this bad in the UK since the end of 1980 when Thatcher was in power and unemployment famously hit three million.
Or, to put it in another way, the excessive and unchecked lending of banks around the world has driven the UK to its worst quarter of growth in 28 years.
And the even worse news is there is no sign of us getting out of this mess any time soon, despite what our optimistic chancellor, Alistair Darling, believes.
He says the UK economy will return to growth in the second half of this year. Yet economists, typically a conservative bunch, are now universally expecting the economy to fall by about 2 per cent in 2009, with some predicting an even greater fall.
The biggest contributor to today's decline was a precipitous drop off in manufacturing - down 4.6 per cent - as global demand for British products fell.
Things have not been this bad in the UK since the end of 1980 when Thatcher was in power and unemployment famously hit three million.
In theory, manufacturers should get a boost by the fall in sterling, which makes our products cheaper to buy.
But even with the staggering decline in our currency - the pound is at its weakest versus the dollar in 20 years - manufacturers will not benefit if worldwide orders are collapsing because of the credit crunch.
So the sterling effect, for now at least, does not look like it will help much.
Given this crisis has been so inextricably linked to the banking sector, one thing the government can do is work as hard as possible to get the banks lending again.
It has been the banks' lack of handouts, to consumers and especially businesses, which has fuelled and exacerbated this crisis.
Yet even here, despite the massive bail out announced earlier this week, it is clear it will take months for the finer details of the package (namely how much it will cost) to be agreed upon.
And even then, the banks are not guaranteed to do what the government asks and boost their lending.
If they do not (some say even if they do) it is clear that thousands more businesses will go bust, panicked consumers will spend less and unemployment will continue to rise.
Within that context, the chancellor could well do with drinking some of his own medicine. He said today "you do need to be straightforward with people" about where we are headed in the UK economy.
Right now, though, his predictions look dangerously optimistic and out of touch. He should revise them, and quickly, so the people of Britain have a much more realistic picture of the state the economy's in.
After all, it is their money he is using to try and cure it.
