Optimism that the worst of the recession is over is giving way to uncertainty about what shape the recovery might take. The events of the past two years have taken us into uncharted territory. What will the route back to normality be like?

The Organisation for Economic Co-operation and Development (OECD) concluded in its latest outlook that the worst of the recession for advanced economies was over but cautioned against putting up the bunting. “OECD activity now looks to be approaching its nadir, following the deepest decline in post-war history,” it said. “The ensuing recovery is likely to be both weak and fragile for some time. And the negative economic and social consequences of the crisis will be long-lasting.”

For Britain, which the OECD predicts will see a 4.3% drop in gross domestic product (GDP) this year, followed by a flat 2010 (though with a pick-up over the year) those consequences will include dealing with a budget deficit it expects to hit 14% of GDP.

Robert Chote of the Institute for Fiscal Studies (IFS), at the annual conference of the Society of Business Economists, pointed out that Treasury plans imply fiscal tightening building up to £90 billion, £2,840 per household, over eight years.

Some of that, though I will say it quietly unless Gordon Brown hears, involves savage cuts in government capital spending and real cuts just about everywhere else.

Whether departmental spending falls nearly 7% in real terms in the three years from 2011, which assumes the reductions are equally shared, or most departments drop 9.7% (if health and overseas aid are spared), or most drop 13.5% (if schools also escape the axe), we are looking at a dramatic, though necessary, reversal.

The IFS said it represents the biggest real spending cuts in any three-year period since Labour was forced to turn to the International Monetary Fund in 1976. It may even be a little purist in claiming only that much. It is probable, though discontinuities in the data do not allow a definitive answer, that cuts in prospect are more pronounced than in the Healey-Callaghan era.

Spending cuts like this, of course, can only be accompanied by reductions in public-sector manpower. A real freeze on public spending for much of the 1990s resulted in a drop in public-sector employment from 6m in 1991 to under 5.2m by 1998 (it is now back at 6m). A tightening of fiscal policy — higher taxes as well as spending cuts — is not the only headwind.

Mervyn King, governor of the Bank of England, told the Commons Treasury committee he had never been more uncertain about the outlook. If the Bank, with its army of economists and agents, does not know, what hope is there for individuals and businesses, which through their actions can either make recovery happen or keep the economy becalmed.

The Bank’s particular concern is about the effect of weak bank lending on the supply-side of the economy. If companies cannot get the funds to invest, a state of atrophy could occur or, at the least, much slower growth in the economy’s productive capacity than we have been used to.

One effect of this, which is worrying the Bank, is that inflationary pressures could re-emerge sooner than normal after a recession. Interest rates are not going to rise for some time, but when they do it could be more sharply than people expect.

This supply-side damage, together with drastic fiscal surgery, could have long-term implications. The Treasury assumes that once recovery takes hold, growth will return to its “trend” rate of 2.75% a year. Ross Walker of Royal Bank of Scotland, adapting the Treasury’s numbers to take account of changed circumstances, including the weaker boost to population and labour supply from net migration, argues that a figure closer to 2% is more likely.

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