BRITAIN HAS not suffered a full-blown slump for a decade, but now fear of recession is stalking the land again. Yesterday's shock decision by the Bank of England to cut interest rates has reawakened fears that bad times are around the corner.
The sense of foreboding has been building up over the past few weeks. The toll of lost manufacturing jobs has grown relentlessly, the country's largest building society is warning of "unsustainable" house price increases and newspapers are full of articles discussing the likelihood of recession.
But that is only one side of the story. Meanwhile the high streets are buzzing with spendthrift consumers and an overwhelming majority of people are in work.
A recession for economists is two successive quarters of falling growth - a fate which befell Britain in 1990, 1991 and 1992 but not since. Certainly the official statistics do not indicate a recession. In the first two quarters of this year the British economy has grown by 0.5 and 0.3 per cent - a sharp slowdown from the 0.9 per cent seen last year but not a slump.
But the raw growth figures do not account for what is known as the "two- speed economy". Different sectors of the economy are running at different rates, so while the domestic economy is growing very strongly, sectors exposed to the fall in global demand have fared badly.
Consumers have shown a blatant disregard for the warnings of recession. Mortgage borrowing is at a record high, and house prices are rising at more than 10 per cent a year. Consumers embarked on their largest shopping spree for almost four years in the three months to June.
The reason for that is simple: more people than ever are in work, unemployment is at a 26-year low and wages are rising at 4.5 per cent a year - well above the rate of inflation. Despite the rash of redundancies, more jobs are being created than lost. Danny Gabay, a UK economist at the the investment bank JP Morgan, said: "While fears of a surge in unemployment are real, they seem overdone when considered in conjunction with the almost equally large number of jobs created."
If consumers' optimism …