Leader: Prepare for pain

NOW comes the rude awakening. For two weeks the nation has been in a state of euphoria, glorying in our athletes' Olympic triumphs – in which Scots played so splendid a part – only to come down to earth with a sickening jolt as the UK economy grinds to a halt. It is the morning after the night before.

Figures from the Office for National Statistics show Gross Domestic Product (GDP) slumped to zero in the second quarter of this year. Since the official definition of a recession is two consecutive quarters of negative growth, Britain is tottering on the verge, with just one decimal point standing between us and the 'R' word. Realistically, this means we are effectively in a recession and we had better adapt our mindset to this situation. This crash comes after 16 years of continuous economic growth, so the transition, in psychological as well as financial terms, will not be easy.

The evidence is implacable. Last quarter we failed to achieve even the modest 0.2% growth rate that had been forecast. Consumer spending fell by 0.1%, the first decline for three years. Industrial output decreased by 0.8%. More predictably, the construction industry plummeted 1.1%. That helped fuel the 5.3% slump in investment. The financial services sector declined by 2.8%. On that evidence, it does not appear unwarrantably pessimistic to conclude we are in a de facto state of recession.

Is the situation any better in Scotland than in the rest of the UK? There is some comfort. Retail sales are stronger here than south of the border. The energy sector is prospering because of high oil and gas prices. Employment levels are buoyant, though economists forecast Scotland will lose 4,500 jobs – 20% of the workforce – in the badly blitzed house-building market by the end of this year. House prices remain stronger than in England.

But it would be unrealistic to pretend that the Scottish economy can plough a significantly different furrow from that of the UK. In an era of globalisation the Tweed can hardly be regarded as an economic firewall. In areas such as house prices it remains to be seen whether the market in Scotland is qualitatively distinct from England, or simply running to a slower time scale. Our main concern must remain the operation of the UK economy.

That is Gordon Brown's problem and it is more problematic for him than for any previous prime minister because, uniquely, he served for a decade as Chancellor before entering Number 10. Never has the buck stopped more definitively at one individual. This crisis is not exclusively generated by global oil prices and the country knows it. Brown is increasingly mistrusted in the area that was supposed to be his great strength: economic competence.

In a style ominously reminiscent of James Callaghan stepping off an aircraft and asking "What crisis?" as the Winter of Discontent loomed, the Prime Minister is now making optimistic claims of an early economic recovery. This is a short-term ploy to see him through his party conference. It can only remind people of how often, as Chancellor, he was obliged to revise his growth predictions downwards.

There is a public memory too of his raids on pension funds of £5bn a year, rising to £7.3bn; of his jilting of Prudence in 2002 to indulge in a £61bn public spending binge over four years; of his recalibrating the economic cycle backwards from 1999 to 1997 to meet his own "golden rule"; of his tax credit scheme squandering £9.6bn of taxpayers' money since 2003; and his selling off 60% of our gold reserves at the bottom of the market. One source of the current economic downturn he cannot disown: on his watch, taxation has risen from 39% of GDP to 43%.

For a man who has been at the helm of the British economy since 1997, his short-term mentality is extraordinary. There is also a Rip van Winkle element about Brown: he was awarded the premiership in a deal at the Granita restaurant in 1994; now he has emerged, blinking, from the Tardis into a very different, 21st-century Britain. He has never been endorsed as Prime Minister by the electorate. These are unpersuasive credentials to command public confidence. Britain's crisis is political as well as economic, and Brown will be lucky to emerge from the anticipated two years of economic pain still at the helm of the country.