Are we in for another major recession? As Britain’s economy grinds to a halt, it helps to know we’ve been here before – and the lesson that historical recessions and global crises have taught us is that some good may come out of it all.
While it was the ‘Great Depression’ in the US, triggered by the Wall Street Crash, the UK experienced a severe recession, as demand for British goods collapsed and unemployment soared, leading to widespread poverty. What brought us out of it was coming off the Gold Standard. This allowed the pound to fall along with interest rates, making us more competitive and boosting house-building and industry. Later governments applied the lessons that you need to act decisively at times of crisis, and not constrain your currency.
Along with Flower Power and bad haircuts, the Seventies are remembered for the end of the post-war boom of the 50s and 60s. Thanks to the Yom Kippur War, oil prices quadrupled. Prime Minister Ted Heath’s attempts to get the economy growing grew inflation instead, and in early 1974 the miners’ strike resulted in the infamous three-day week. Unemployment rose along with inflation, climbing to 26% in 1975 with a stagnant economy – ‘stagflation’.
In 1979 Margaret Thatcher became PM, determined to reverse Britain’s decline. She raised interest rates to cut inflation and the value of the pound went up too, thanks to North Sea oil. Despite all this, inflation rose to 20% in her first year. A perfect storm of high inflation, high borrowing costs and cheap imports blew a fifth of Britain’s manufacturing away. However, we’d learned by now that the economy is cyclical – recessions don’t last forever.
We were doing rather nicely again by the mid 1980s, with lower unemployment and inflation down below 2.5%. But low interest rates and tax cuts fuelled a property free-for-all. By 1988 interest rates were up to 15% – a nightmare for mortgage-payers.
Then a member of the Exchange Rate Mechanism, Britain couldn’t cut interest rates. The result was over three million unemployed and record house repossessions.
In 2007 Northern Rock went on the rocks, and a year later Lehman Brothers’ employees walked out of the building with their belongings in a box: The Great Recession. Once again it started in the US, where a booming housing market led global financial institutions to buy ‘sub-prime’ mortgages in bulk in the hope of a quick profit. It didn’t go well. The property market dropped, homes were worth less than the mortgages and repossessed in their thousands. Millions lost their savings, their jobs and their homes.
We learned that unaffordable debt is the Devil.
The current pandemic is a tragedy for thousands and a serious threat to our economy. Current data suggests we’ll dive into a recession deeper than 2008. But looking back over historical recessions and global crises, it’s clear they are catalysts for change – sometimes for good.
World War II brought in the computer and rocket technology. Britain is brilliant at innovation, especially when our backs are against the wall. A new ventilator and hands-free door opener are just the start of new inventions that could boost our economy in the future.
Burberry is making personal protective equipment, McLaren is making medical ventilators, private labs are working with the government on testing. Let’s hope working together continues when this is over.
The boss of Barclays says coronavirus will have a lasting effect on where staff work, and that buildings with 1,000 workers in them “may be a thing of the past”. Could your expensive commute become a distant memory?
Local food shops vital again, neighbours coming out to clap the NHS and delivering food to people nearby they’d never spoken to before: could local communities and economies see a revival?
Carbon emissions are down dramatically, pollution has gone and skies and air are clear, wildlife is burgeoning. How willingly will we sacrifice that when this is over?
So there’s our run-through of historical recessions. Best begin cutting your costs now, starting with your credit cards. Check out our top picks for credit balance transfers.
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