LONDON BRIEFING:Public borrowing, bank losses and, astonishingly, banker bonuses reached new highs in 2009

IT WAS a year of records and recession and of anniversaries and apologies; a good year for banknote printers but a grim 12 months for almost everyone else.

As the global financial crisis swept through the real economy with a vengeance, Britain was officially declared in recession at the start of the year. By December, it had become not only the longest but also the deepest recession in the nation’s postwar history.

Unemployment nudged 2.5 million with the young particularly hard hit. Almost one million 16- to 24-year-olds are now without a job, raising fears of a “lost generation” for whom paid employment is a distant dream.

National debt spiralled alarmingly, forcing chancellor Alistair Darling to raise his forecast for government borrowing to a record £178 billion (€197 billion), representing almost 13 per cent of national income.

The government was accused of “maxing out the nation’s credit card” and, as more and more public money was poured into the banking system, Bank of England governor Mervyn King looked to Churchill to convey his fears over the nation’s rapidly deteriorating finances. Warning that we would be forced to pay for the impact of the crisis for a generation, King said: “To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many.”

Stung by accusations that it had acted too slowly at the start of the crisis, the Bank of England cut interest rates to a historical low of 0.5 per cent in March, where they remained all year. And the printing presses worked overtime as the bank’s quantitative easing programme – pumping cash into the financial system – was extended from £75 billion to £200 billion.

There were two anniversaries, but no celebrations: August marked two years on from the run on Northern Rock, while in September we recalled with a shudder the calamitous collapse of Lehman Brothers a year earlier. There was a record-breaking loss from Royal Bank of Scotland (RBS), which crashed into the red by a massive £28 billion, the biggest deficit in British corporate history.

Still more taxpayers’ money was used to bail out the banking sector. In October a further £39.2 billion was injected into RBS and Lloyds Banking Group, in return for which the government once again demanded restraint on bankers’ bonuses and (once again) directed the banks to resume lending to struggling small businesses and would-be homeowners. In total, £850 billion has been poured into the British banking system and it will be years before we know the full scale of loss to the taxpayer.

Against this background, the behaviour of Britain’s hated bankers was little short of astonishing. In February, in what was billed as the first “show trial” of the credit crunch, four leading bankers were hauled before MPs at Westminster to account for their part in the crisis. They included Sir Fred “the Shred” Goodwin, former chief executive of RBS, and Lord Dennis Stevenson, former chairman of HBOS.

“There’s been a lot of talk about the s-word,” said Stevenson, who went on to declare that he was “profoundly and unreservedly sorry” about how things had turned out. Sir Fred said sorry too and other bankers apologised with varying degrees of sincerity.

But within months, a new buzzword was echoing through the City of London: Bab (Bonuses Are Back).

As the rest of the nation became mired deeper in recession, the sight of bankers back at the bonus trough was almost too much for an outraged British public to bear. The row over Fred the Shred’s £700,000-a-year pension rumbled on for much of the year and public anger spilt over as a vigilante group smashed the windows of his Edinburgh home. The disgraced former banker was already hiding out in the south of France, however.

As the year drew to a close, it became apparent that the banks had no idea – or simply did not care – just how much they were hated by the rest of the nation.

As they prepared to pay out record-breaking bonuses, Darling slapped an unprecedented “super tax” on them in his December pre-budget report. Bankers reacted with fury to the 50 per cent tax on bonus payments over £25,000, with many threatening to flee Britain for countries with more liberal tax regimes.

“Good riddance” was the popular response, although there were dire warnings of the damage such an exodus would do to the City of London.

However, one senior Bank of England official waded into the controversy with a somewhat unexpected view. According to Andrew Haldane, the bank’s director for financial stability, the loss of some bankers from London “might be a price worth paying” given the huge cost of supporting the financial system.

There were some lighter moments in 2009. In July, the Queen received a three-page letter from a group of leading economists explaining why they had failed to see the financial crisis coming. It was a belated response to a question she had asked months earlier on a visit to the London School of Economics. Their answer, for what it’s worth, spoke of “a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole”.

Young Matthew Robson made a name for himself in the City when he wrote a report detailing teenage media habits during his stint as an intern at Morgan Stanley in the summer holidays.

The 15-year-old’s report, which made it to the front page of the Financial Times, generated five times more responses than its usual research, the bank admitted.

The laughs may have been few and far between, but there is a feeling, as the year draws to a close, that it could have been so much worse. At one stage it seemed the recession would spiral into depression but that has been averted and the financial system seems on a stable footing.

But the bills must be paid. In 2010 there will be a general election and the new government, whatever its political hue, will be forced to slash spending and raise taxes as its tackles Britain’s debt mountain as a matter of urgency. The real pain has yet to come.

Fiona Walsh writes for the Guardiannewspaper in London