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The Friday Five: the financial crisis five years on

It might have been half a decade since the start of the credit crunch but it's clear we've still got a long way to go down the road to recovery...

 

by Victoria Bischoff on Aug 10, 2012 at 11:38

The Friday Five: the financial crisis five years on

It has been five years since the start of the credit crunch and while we're not in quite the state we were, it's clear we still have a heck of a way to go on the road to recovery.

1. Our economy isn't growing

First, we’re back in recession – the much talked about double-dip.

Having only staggered back into growth in January 2010 following 18 months of recession, last month’s figures from the Office for National Statistics show that the UK economy has contracted for the last three consecutive quarters, dropping a huge 0.7% in the three months to June.

And according to the Bank of England, it doesn’t look like things are going to improve anytime soon.

Just this week the Bank of England hacked back its forecast for economic growth this year from 0.8% to zero per cent. Its medium-term growth forecast, meanwhile, was similarly cut from 2.6% to roughly 2%. 

Or as Bank of England governor Mervyn King put it 'unlike the Olympians who have thrilled us over the past fortnight our economy has not yet reached full fitness'.

In a desperate attempt to boost the economy, the Bank of England has even hinted at an interest rate cut from the current record low of 0.5% – which would be exceptionally bad news for savers who have already suffered over three years at this low level. Experts also expect the bank will be forced to extend its quantitative easing programme beyond £375 billion.

2. Inflation is still above target

Inflation might have fallen to its lowest level since November 2009 but at 2.4%, as measured by the consumer prices index (CPI) in June, it is still above the Bank of England’s target of 2%.

However, given CPI was at 5.2% in September last year, 2.4% is a marked improvement and will go some way to help people struggling to protect their income against the eroding effect of inflation.

RPI inflation – which takes into account housing costs – meanwhile is still 2.8%, down from 3.1% in May.

3. Lenders aren't lending

Before the financial crisis credit was dished out like cheap candy, now it’s held back as though it’s ambrosia – food of the gods rather than that horrible rice pudding for those who didn’t do Classics.

Lending to small and medium sized businesses has fallen consistently since mid-2009, while a lack of mortgage finance has kept many would-be home owners locked out of the property market and stuck renting.

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11 comments so far. Why not have your say?

John Lacy

Aug 10, 2012 at 12:33

The situation has become self-perpetuting---the banks have a load of loans out there to countries, industry and individuals which are likely not to be repaid even in today's benign interest rate structure. They are reluctant to lend too much more money as they don't like the look of the world economy and are trying to limit their exposure. This isn't going to change without some serious guarantees from the government that help will be forthcoming if their bad debts exceed expectations and that doesn't seem about to happen any time soon.

No growth equals no lending and no lending equals no growt

It won't happen but if all the indebted countries were to renege on their debts at the same time the lenders would have to accept the situation, go bankrupt with them and start again with a clean slate hopefully in a world where lessons have been learnt

Short term hell for a long term gain.

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joe stalin

Aug 10, 2012 at 12:40

Fantastic lets have some more doom we are all stuffed the world is going to end and it is going to be very painful for everyone ahhhh! Look inflation is only 0.4% above target and the rate will fall below target sooner rather than later. The target to halve the worldpopulation living on less than a dollar a day was achieved in 2008 7 years early, life expentancy is rising AIDS has peaked. Company earnings are ahead of expectations year after year, dividends are being held or rising. Sure banks dont want to lend right now but would you if you had the likes of Vince Cable wondering how he can do yet more damage? But the banks are being turned around and will repay what they owe. We might speculate how much sooner they maight have been in the position to do so but for politically motivated interference.The markets are being manipulated day in day out by HFT the effect of which is keeping money out and hence volatility high.The media seems to thrive on creating an aura of fear and uncertainty- The avaerage house price fall by 0.6% OMG it is going to fall at least another 30% they cry.Well chaps the world has not come to an end, the sun is still shining we have achieved the impossible and defied media prediction that the olympics would be a disaster. I dont wear rise tinted glasses but did get stuck in in 2009 when the media predicted the lights would go out FORVEVER. I only hope that many out there takes these sort of predictions with a huge amount of salt and do their own homewok. HAPPY DAYS

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S M

Aug 10, 2012 at 15:24

Don't we need to get back to a sound base, before growth will happen?

We were living beyond our means for years.

House price inflation was daft, people were fiddling, then defaulting on, mortgages.

People were swapping credit cards like they were going out of fashion.

Productivity was in decline, particularly in the public sector.

The story of Labour is now legion.

I'm not surprised growth is not forthcoming & can see it like this for years.

Property has a way to go down yet.

The eurozone has to unbundle yet, knocking even more markets out of the equation

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Nigel Paul Brissett via mobile

Aug 10, 2012 at 17:35

Excellent article, it is very clear that the Chancellors office and the Bank of England need to have a serious re-think regarding our current strategy. Clearly, the austerity measures are not working! Would it be so bad if the government were to consider alternative ideas? Rather than pursuing what would appear to be a road to doom and gloom!

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James Richards

Aug 10, 2012 at 17:47

Get rid of ALL left wingers from Parliament for a start. That includes all Labour and Lib Dem MP's and about 50% of the Tories.

Get rid of at least 50% of the civil service money wasters.

Cut taxes. Stop overseas aid.

Stop sending money to the EU money drain. If they don't like it, tough. Sue us if they dare.

Get out of Europe.

Then we could make a start on mending the country

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Raj Thamotheram

Aug 10, 2012 at 21:45

The author of this piece - and many others - seems surprised that no real reforms have happened.

Deeper analysis is needed to explain the immunity to change that has infected our political and financial elites.

Here are 2 articles which help. Those who've made the mistakes (and their financial/intellectual supporters) will find them hard to digest. That's probably a good sign!

http://www.guardian.co.uk/business/economics-blog/2012/aug/05/economic-crisis-myths-sustain

http://www.theglobalist.com/storyid.aspx?storyid=9710

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James B. Johnson

Aug 11, 2012 at 22:02

James Richards

Plan .B.

1. Get rid of all Tory M.P.'s

2. Get rid of all Liberal Democrat fellow travellers

3. Get rid of all millionaires from cabinet.

4. Cap all incomes at £1million per annum (more than enough for anyone).

5.Re-introduce 60% tax rate at £150,000 per annum.

6. Give tax breaks to the poorest, including pensioners. (These people will actually spend the cash).

7. Require all companies who operate in the U.K. to pay U.K. tax.

8. Start a huge capital investment programme. (Yes. Borrow the money. That's what companies do).

If you don't like any of this, find somewhere better to live. Try Greece, Spain, Italy, France or the U.S. Good luck with that!!!

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jb

Aug 12, 2012 at 09:20

Well said to Joe Stalin - the negative and largely uneducated media is the biggest hindrance to restoring confidence and growth

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Anonymous 1 needed this 'off the record'

Aug 12, 2012 at 11:15

Thank you for another second rate article .... fortunately there are books out there i.e. 'How the west was lost' by educated woman..... worth a read ..... might help you understand what is going on in little lost england

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Paul Tricki

Aug 12, 2012 at 12:30

With investment returns and interest rates on savings at all-time record lows, isn't it about time that fund managers reduced charges for a year or two. Fat chance eh?

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Bhavesh Sutaria

Aug 31, 2012 at 01:15

Until the massive debt caused by asset bubbles & funny money lending from 1995 to 2005 is paid back, nothing will improve.

That's a lot to pay back ... into trillion levels perhaps

Either we get a crash, and see asset values wiped out 25% to 50%.

Or we see money printing, and devaluation of currencies and asset values, and corresponding high inflation squeezing the pips of people. A slow and sure wipe out of values over a long period of 10 years.

Governments would prefer the latter, and have pursued money printing operations etc. I guess the population needs a slow landing too. That is why nothing has really improved, its all just fake money & hot talk.

At some critical crisis point, the awful realisation will hit, the Emperor will be exposed, panic will start, and send markets crashing.

After the honeymoon the new US President is over, watch focus sharpen on the US debt levels, and the dollar value towards end 2013 / 2014, and the markets in 2014, and its effect on government bond rates, and then public interest rates in 2015. That's the point we're gpoing to be hit hard.

So enjoy the calm before the storm. Unless the Euro gatecrashes into hell, and starts hurricanes which can;t be stopped.

There will be no real boom like the 90's, until probably 2018 or 2020, and a generation of youths will have their future wiped out. Amen.

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