The storm clouds are gathering over the jobs market; the climate on the high street is growing distinctly chilly; a typhoon of bad debt is buffeting the banks. Could a "perfect storm" be about to hit the British economy?
The signs couldn't be much bleaker. The switchback in sentiment since the credit crisis began in the summer has been violent. The Nationwide Consumer Confidence Index recorded its largest drop yesterday, and joins the GfK/NOP survey earlier this week in suggesting that a wave of pessimism not seen for years is washing over the economy.
House prices have begun to fall, albeit slightly; commercial property is seemingly on the brink of collapse on a par with that seen in the early 1990s. The buy-to-let market is vulnerable. The Bank of England has, unprecedentedly, voiced concerns about the grim prospects for real estate. And the Financial Services Authority has warned of the "very real prospect" of the global credit crunch getting much worse. It is that bad.
Shopkeepers are looking forward to a black Christmas. Sir Philip Green, the boss of Top Shop and BHS, said last night on Sky TV that "business is very, very tough". The British Retail Consortium says that sales grew only marginally in November, having slowed markedly in October. JD Sports, ScS furniture and Greene King are the latest household names warning of setbacks. About 4.4 million credit-card customers still haven't cleared debts they ran up last Christmas, according to MoneyExpert.com.
We're less ready to spend, particularly on "big ticket" items -- furniture, fridges, cars and so on. We're more pessimistic about our finances. We don't want to take on more debt and we want to rebuild our savings. The credit markets are seizing up again. That means banks are becoming much, much choosier about who they lend to, and are charging ever higher rates, despite the efforts of the authorities to keep money markets functioning normally. No lending; no spending.
That unwillingness to lend -- the credit crunch -- has started to affect businesses too, though firms remain generally more upbeat than consumers. Manufacturing firms, and in particular those in the car industry, are happy, a veritable ray of sunshine. However, manufacturing makes up only 15 per cent of the economy. In the financial sector, responsible for more than half of the recent growth in the UK's GDP, the mood is glum.
After months defying gravity, share prices have suffered some dramatic falls. City bonuses will be cut this year -- and next -- along with recruitment and investment. Barclays, HSBC and other banks have reported billions in losses, while the future of Northern Rock is uncertain.
Growth in the construction sector eased to a 14-month low in November, according to the Chartered Institute for Purchasing and Supply. The gentle rise in unemployment over the past 18 months may accelerate. The accountants KPMG say that "what we are seeing is that the credit crunch is tightening its grip over the economy... an underlying weakening, with both demand for permanent staff and vacancies down on the levels earlier this year."
Everyone from the Treasury to the IMF has trimmed their forecasts for UK growth; from close to 3 per cent for 2008, down to nearer 2 per cent. The IMF says that even this is now too optimistic. Is it time to start talking about the "R-word" -- recession, and the possibility that the economy might shrink?
The difficulty is that the credit crisis is a process that feeds on itself rather than an event that can be declared "over". It began with the collapse of the US sub-prime mortgage market and the housing crash there, problems which are intensifying. As more sub-prime customers default -- because of the credit crunch -- more banks record losses and stop lending, and more properties are dumped on to the depressed US housing market. That depresses confidence and spending, and the screw turns again.
On this side of the Atlantic we feel the chill because our banks are exposed to sub-prime and because the US economy is the world's biggest. If it slows, it drags us down with it. And the mood of economic gloom -- Northern Rock, headlines on house-price crashes, higher prices for fuel at forecourts and food at checkouts -- is reinforcing itself. Confidence is the magic ingredient in any economy; it is evaporating fast. There's no knowing how bad it could get.
The most pernicious aspect of this downturn is how it could turn not so much into a recession, but into "slowflation" -- slow growth plus inflation. A depressed economy can co-exist with high inflation, as the world found in the 1970s. Low demand and high input costs (such as oil at $100 [£48] a barrel; wheat prices at record highs) squeeze profits and employment and cut the real value of wages. It also makes it tougher for the Bank of England to allow interest rates to drift lower.
But the really bad weather would arrive if the Chinese economy stumbled. Next year, more than half the world's growth will derive from China, India and other emerging economies. Were they to falter -- say because the Shanghai stock market bubble burst -- the world would almost certainly lurch into recession.
In all events, the worst of the slowdown will hit us towards the end of 2008, going into the spring and summer of 2009; the point when a general election is due. By then the public finances would be well out of control, though that may be the least of ministers' worries. Gordon Brown might not have sowed the seeds of the coming economic storm, but he may well reap the whirlwind.
Business as usual?
Keith Bowan: Equity analyst at Hargreaves Lansdown Stockbrokers
"There is an air of unease among stockbrokers at the moment. In recent weeks the market has been trying to factor in the credit crisis and what it means going forward. Obviously this has affected the bankers most, but it has trickled down to other areas. People in property have been severely hit, as have house building stocks. But further down, even the pub operators have faced trouble. There's certainly an air of caution that has descended on investors ever since Northern Rock -- there's no doubt about that -- and I'd say the mood is still cautious going into 2008. The stock market acts as a barometer of where things will be in the next six to twelve months, so investors must broadly expect conditions going forward to be difficult."
Ron Turnbull: Finance director of SCS Upholstery, Sunderland
"Clearly our sales have been worse this year than we forecast, and significantly down on the same period last year. We've been suffering for some time from the interest rate increases, and these are now filtering through to the customer.
"The effect of turmoil in the American sub-prime sector has had a big influence on the confidence of consumers over here. But it's not just that they're feeling more anxious because they see savers queuing up outside Northern Rock; they've actually got much less disposable income than they've had for a long time."
"Banks are less willing to lend to customers, even cutting down on lending to each other. Meanwhile essential spends like utility costs and council tax are rising way above the rate of inflation. All of this is coming together to make consumers much more cautious with their spending, and it is businesses like ours, which are vital to a healthy economy, that are suffering the consequences."
Barnaby Stutter: Store worker, Brixton Cycles Co-operative
"Like any other, our business is not 100 per cent recession- proof. But partly because we're a workers' co-operative, and partly because we've got a lot of fluidity, I think we'll survive any coming troubles. We can move from selling bikes to fixing them; pubs and restaurants, who really are suffering, don't have that sort of option.
"There's a snowball effect: the more people worry about it, the worse it becomes. Our culture seems to thrive on anxiety and people are ready to panic about what they're told to panic about. But retailers on the high street expecting a big Christmas bonanza are going to be disappointed.
"Realists always sleep well at night, and being realistic about the forthcoming festive season means lowering our expectations of it."
Carl Lester: Birmingham fashion boutique manager
"People do seem to be spending less at the minute. I've got two branches selling designer clothes in Birmingham, and overall the business is down.
"I think people who might once have shopped here once a month are coming more like once every two. Also, customers seem to be thinking more about what they already have before they spend.
"We've talked ourselves into a recession, and all of a sudden it seems like we're going to get one. I'm not too worried, as my business survived the same thing happening in the 90s."
Tony Brooks: Owner of the Cluny pub and restaurant, Newcastle
"I'm in no doubt that this is the start of the worst trading conditions in the 28 years I've worked in the industry. If you read the trade papers they're full of terrifying figures about the difficulty of the current climate. But in reality it's even worse than they make out.
"The pub trade in particular is coming under heavy attack from the Government on several fronts. Supermarkets selling ridiculously cheap alcohol make it impossible for us to compete, while the smoking ban has been a massive drain on our appeal. And new planning regulations are so tough it's proving harder than ever for us to make money. Some weeks, pubs are down 20 to 30 per cent on the same period last year.
"The broader economic conditions are making our life hell. Higher interest rates and unaffordable mortgages mean that disposable incomes are fast shrinking. Every consumer has priorities; our industry relies on there being some change in people's pockets after those priorities have been met. Today that spare change is disappearing.
"I'm not exaggerating in saying the next few weeks are going to be very painful, and 2008 will be the worst year ever for our industry, with more than 2,000 pubs almost certain to close."
Peter Clayton: Chief executive of the Association of Professional Recruitment Consultants
"As with any sector, there are noticeable trends in recruitment that are an indication of the health (or sickness) in our present condition. What we've seen over the past few months is a move to contract placements rather than permanent placements, which is a sure sign that employers are feeling shaky. Permanent placements have dropped by about 30 per cent in the last quarter -- a massive shift.
"These trends haven't been such a prominent factor in the recruitment sector for several years. Employers on the whole are feeling very anxious and less willing to increase their payrolls by expanding staff numbers. Businesses are starting to recruit themselves rather than through agencies which, again, is a sign of anxiety."