Britain is expected to be officially declared in recession on Friday for the first time since the early 1990s. We look back at the key economic and financial events of the 12 months that have brought us to this point.
January 2008: The calm before the storm
With the credit crunch raging, analysts expected a sharp slowdown in growth during 2008 but few forecast an actual recession. With oil hitting the $100 a barrel mark for the first time, inflation was seen as the big danger.
The FTSE 100 began the year at 6456.9 points, not far from its all-time high. It would end 2008 more than 2,000 points lower.
There were signs of trouble looming, with profit warnings from Land of Leather and DSG, and a shock fall in sales at M&S. But the Bank of England kept interest rates at 5.5%, worried that rising energy bills were pushing inflation higher.
February: Rock solid?
The banks were hit hard. Northern Rock was finally nationalised after the government found no-one was prepared to buy it.
Ryanair's claim that they would welcome a "good, deep, bloody recession" got people talking about the r-word, and there were early indications that the public were suffering. Consumer confidence hit a nine-year low, while lenders reported an increase in repossessions as people struggled to meet mortgage payments. The Bank of England cut rates by a quarter-point, to 5.25%.
March: The Gold Rush
The price of gold hit a record high of $1,000-an-ounce as investors fled the stockmarkets. On Wall Street, Bear Stearns suddenly collapsed and was rescued by the Federal Reserve – showing that the financial crisis was far from over.
But Alistair Darling stuck to the government script of stability in his first budget. He told parliament that the British economy would grow by 2% in 2008 and 2.25% in 2009 – forecasts that now look wildly optimistic.
April: Confusion at the Bank of England
With inflation rising and economic growth clearly under pressure, economists began to talk of "stagflation".
The Bank of England trimmed rates to 5%, but the real surprise was that policymakers were split over how to handle the crisis. Six voted for the quarter-point cut but two hawks - Andrew Sentance and Tim Besley – wanted rates left at 5.25%. Only uber-dove David Blanchflower saw the need for a half-point cut.
Currency traders voted with their feet, pushing the pound to a record low of €1.25 against the euro – a trend that continued throughout the year. And Britain's biggest housebuilder, Persimmon, halted new projects.
May: The housing bubble burst
Mervyn King issued his bleakest forecast since becoming Bank of England governor, warning that "the nice decade is over"and predicting that households had more pain ahead.
Inflation jumped to 3% as food and energy prices soared, but in the housing market prices were falling at the fastest rate since 1991. Buyers were in very short supply, with many finding it impossible to get a mortgage as lenders hoarded their cash instead.
People who managed to buy a house during the bubble now face the threat of negative equity.
June: Dear Alistair, About that inflation target …
Mervyn King was forced to write to Alistair Darling to explain why inflation had leapt to 3.3%. The governor warned that he could not raise interest rates as that might push the economy into a damaging downturn.
Economists got a nasty shock in June when GDP growth for the first three months of 2008 was revised down to just 0.3%, showing that Britain was in worse shape than thought. Official data showed that families were eating into their savings to keep afloat.
July: Recession alert
The "red light of recession" began flashing. The manufacturing and services sectors suffered unpleasant falls in output, unemployment kept rising and the housing industry began shedding thousands of jobs. Retail sales also dropped as shoppers stopped spending.
The cost of a barrel of US crude hit an all-time record of $147. But finally the prospect of a global economic slump sent prices falling, and fast.
In the US, the drama was even more compelling as mortgage giants Fannie Mae and Freddie Mac were rescued by the government after nearly going bust.
August: Economic growth stalls
After months of fretting about inflation, the Bank of England issued a dire warning about the stage of the economy. Mervyn King sent the pound into freefall by predicting that growth would grind to a halt – although the word "recession" still did not pass his lips.
A week later, we learned that economic growth was 0% in the second quarter of the year, and the opposition turned on Gordon Brown. George Osborne accused Labour of "economic incompetence" for not saving during the good times, while Liberal Democrat Vince Cable saw a deep recession ahead.
September: It's bad, Darling
The start of autumn was dominated by Alistair Darling's warning that the UK faced its most difficult time in 60 years in an interview with the Guardian. The pound crashed to a fresh low against the euro.
With the OECD predicting a UK recession, economists queued up to shoot down the government's official projection of 2.5% growth in 2009. But inflation kept going up, preventing the Bank of England from cutting rates to help industry and consumers.
In the UK, thousands of holidaymakers were hit as tour operator XL collapsed. And on Wall Street, Lehman Brothers failed – sending shock waves around the world and sparking mayhem in the financial markets.
October: Bailing out the banks
October 8 was a truly momentous day. With the financial world in turmoil, central banks united to try to stem the panic. Interest rates were slashed worldwide: the Bank of England, which had left rates unchanged at 5% since April, finally cut to 4.5%.
This came just hours after Gordon Brown launched his first banking bail-out, including £50bn to partially nationalise some banks.
Third-quarter GDP data was also released, showing a shock decline of 0.5% - much worse than expected (this was later revised to a 0.6% fall). Finally the City accepted that the downturn was much worse than many experts had thought.
November: Doubling the national debt
The Bank of England stunned the country by slashing interest rates to 3%. The cut followed pleading from industry and the housing industry.
In the pre-budget report, Darling announced £20bn in tax cuts and increased spending, in an attempt to stop the UK economy falling off a cliff. The chancellor also admitted that the economy would shrink during 2009, tearing up his previous forecasts.
Opponents hit out at the plan to raise the national debt to £1 trillion. Osborne called it a ticking time bomb.
The downturn sent MFI and Woolworths into administration.
December: Unemployment keeps rising
Britain faced its toughest Christmas in many years. With Woolworths closing down, Whittard of Chelsea, Zavvi and The Pier all call in the administrators before Christmas, while other high street retailers were forced into heavy discounting to try to lure shoppers to spend.
Interest rates were chopped to 2% - their lowest point in more than 300 years - as manufacturing and services firms suffered their worst conditions in 16 years. Zero interest rates became a real possibility, sending the pound close to parity with the euro.
Unemployment kept rising, with more than 1 million now claiming benefits. Thousands of jobs were cut in the City and many carmakers told their workers to down tools for a long Christmas break.
January 2009: Recession expected
With the pound plunging against the dollar, banking shares being routed despite a second bail-out, and thousands of jobs being lost each week, official confirmation was expected that the UK is in recession.
Copyright Speakers Corner 2017