In a week's time I am set to deliver the annual lecture for the Faculty of Actuaries – a daunting prospect given the collective brainpower that will be on display in the audience.

That has made me think a little more about the longer term issues – actuaries deal in the longer term – aided in that task by discussing with Professor David Bell, some of whose slides I shall purloin for the talk because their implications are so consistent with the story I have been trying to tell in recent months.

However, these longer-term issues are not just relevant in that time span. They need to be taken into account as we plan even now.

The fact that post-recession we will be entering into a very different world from the "NICE" (Non-inflationary Consistent Expansion) world of the decade that spanned the turn of the century is distinctly pertinent to the discussions around UK and Scottish budgets; and indeed to consideration of priorities for Scotland's economic policies and public finances over the coming years.

The key data issued last week were those for UK Gross Domestic Product for the second quarter of 2012. The immediate reaction may have been of relief – as the outcome was revised up once more in this the third version of the estimate. But that outcome is still an estimated fall of 0.4%, worse than in the second quarter and incorporating both a decline in the manufacturing sector of 0.8% and deterioration in our trade balance.

With manufacturing and exports struggling it is difficult to see how the required rebalancing of demand in our economy can be achieved expeditiously. Indeed had these been the first estimate the headlines would have been about how disappointing they are rather than relief than matters are not as bad as previously expected.

Returning to that longer-term perspective, I note that the recession that started in 2008 is now well into its second half-century in terms of months and that output remains some 5% below the previous peak. Obviously that compares badly with the recessions at the back end of the last century. In those episodes recovery was under way within 30 months and by this stage output was well above the level when our economy entered recession.

Even in the Great Depression of the 1930s recovery was under way within three years and a new peak in output was achieved in some 45 months. We do not know how long this recession will last nor when we can expect to see output back above that 2008 level; not soon is certainly the answer to at least the latter of these questions.

Indeed this "cycle" reminds me more of the Japanese lost decade than any 'standard' cyclical recession.

One of the reasons the Japanese experience endured was failures of monetary and fiscal policy.

There is no doubt UK policymakers face a real conundrum on at least the fiscal front. (On the monetary side I see no alternative to ultra-low interest rates right through to when recovery is well and truly entrenched.) It must be acknowledged by all that the fiscal deficit has to be dealt with.

Last May the IMF estimated that "the UK's structural deficit will be the highest among all OECD countries and the 27 EU member states". Fortunately our stock of debt related to gross domestic product is lower than in many of these economies, but lack of action on the deficit will lead to spiralling debt – an unacceptable outcome.

However, we are already seeing that because economic growth (decline!) is underperforming compared to expectations, the pace of reduction of the total deficit is lower than anticipated.

The cyclical component of the deficit is rising as tax revenue disappoints and some benefit payments overshoot because of the slower growth. One knee-jerk reaction would be to simply accelerate the fiscal tightening in response to this outcome. But if that led to even slower growth, as demand was cut back once more, the cyclical and total deficits could rise once more. We could enter a very nasty downward spiral.

So UK policymakers have to seek means of achieving structural deficit reduction in a reasonable timeframe without damaging prospects of a return to growth.

Nobody has ever said that being Chancellor is easy, but revised fiscal policy measures should be judged within this context.

Clearly this all has implications for the Scottish public finances. I have another opportunity this week to give my two-penny worth when along with DHI-related colleagues I have a round table session with the Holyrood Finance Committee.

I would also like to quote former Auditor General Robert Black, in anticipation of the DHI seminar he is delivering this week.

"Political engagement with the public continues, for the most part, to be about which party can provide more services or sustain fewer cuts than its rivals. This runs the risk of crowding out the opportunity to consider openly hard choices about reprioritising our public services in times of financial constraint and about significant service redesign or restructuring issues."

It is a time for hard choices at both the UK and Scottish levels, endeavouring to encourage a return growth and positioning our public services and our economy as a whole to be efficient and competitive as and when domestic and global demand does recover.

l Jeremy Peat is director of The David Hume Institute