In introducing the latest Inflation Report, Mervyn King, governor of the Bank of England, remarked that "it is very likely that the UK economy entered a recession in the second half of this year". In fact, it is certain. The question is what the UK authorities can and should do about it.
Look at the big picture. UK households have borrowed too much and saved too little: in the first quarter of 1992 they saved 12 per cent of disposable income; by the first quarter of 2008, this had fallen to minus 1 per cent. Low savings and high debt were a consequence of the feverish credit growth of recent years. In turn, the credit crisis is a revulsion against those debt accumulations.
