Why 2012 will be Groundhog Year

WELL good riddance to all that. Few would disagree that 2011 was truly an annus horribilis, a year defined by feckless politicians and unruly mobs. I, for one, felt a sense of relief when the chiming bells heralded the start of a new year; at certain times over the last twelve months, it felt as though Britain, along with much of the Western world, was staring into the abyss.

It was a year full of surprises. Who would have thought the Libyans would take the path towards democracy while the Italians would be ruled by unelected technocrats in Rome, a city that first became acquainted with the ballot box around 440 BC. There were sadnesses too, such as the death of Apple founder Steve Jobs, a true visionary whose legacy will rival that of Ford and Carnegie, and the closure of the News of the World.

It was the escalating debt crisis in Europe that dominated the agendas of most of our readers, and unfortunately 2012 will only bring more of the same. Like the weatherman in Groundhog Day, who is forced to relive the same day over and over again, European leaders will muddle through the next year in an ad nauseum repetition of the last twelve months.

If the sticking plaster solutions avert Armageddon, Britain could avoid a painful recession this year. According to the Treasury’s latest compilation of independent forecasts, just two economists are predicting negative GDP growth this year; the average forecast is for growth of 0.7 per cent in 2012. But if the euro crisis results in a disorderly break-up of the single currency, all bets are off. ING reckons such an event would wipe five per cent off GDP while consultancy group Fathom reckons the hit would be nearer seven per cent. That would be as painful as the recession of 2008-9, when GDP fell by a cumulative 7.1 per cent.

Even the best-case scenario of anaemic growth or a small recession is pretty grim. Households, already reeling from the worst squeeze on real incomes in living memory, will continue to feel the pinch. There is no guarantee that inflationary pressures will ease, despite what the Bank of England claims. Since 2008, the consumer price index has been above the two per cent target for 87 per cent of the time, always because of supposedly “temporary” factors (even though the common denominator has been ultra-low interest rates).

Wages too will remain constrained, with the CEBR predicting average earnings increases below two per cent. All this is bad news for the high street, which has already kicked off the new year with a round of casualties.

We can only hope that the unruly mobs who held London hostage in August will stay away, although the problem of an increasingly febrile British underclass is not going to solve itself.

Even if we are spared more riots, Britain will be no stranger to social unrest in the form of public sector strikes and protests. Anger at the perceived injustice of executive pay packages will continue to flare up, fanned by the careless pronouncements of politicians of all hue.

The Prime Minister made such an intervention yesterday, using his new year message to promise to tackle “excess in the City”. As is so often the case with David Cameron, this was pure spin without a single new policy in sight. But rhetoric can be damaging too, especially when it conflicts with the government’s aim of proving Britain is open for business.

I am sorry I can’t offer something more cheerful for the first column of the year, except to say that if Britain survived 2011, there is no reason it can’t get through 2012 as well.

david.crow@cityam.com
Follow me on Twitter @davidcrow83

• Allister Heath is away