An alarming déjà vu

All the signals are still flashing red in the Eurozone, despite the recent muddled attempt at a bailout. It is feeling more and more like the middle of 2008, when a major financial crisis was already upon us yet the authorities remained convinced that half-measures would be enough to avoid catastrophe.

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The coalition is failing to deliver

You wouldn't believe it if your only source of news was the BBC, but the number of jobs in Britain actually went up last year.

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Sorry, but it's time to put up interest rates

Borrowers won't thank me for saying this but it is time for the Bank of England to start hiking interest rates.

The economy is recovering at a break-neck speed, inflation is far too high and savers are being wiped out by ridiculously low rates of interest. Andrew Sentance, the one hawkish member of the Bank of England's monetary policy committee (MPC), is spot on: we must start weaning ourselves off ultra-cheap money before we become truly addicted to it.

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Coalition presents a mixed business bag

Buy sterling, sell the euro: that was the rallying cry in the City as the news sunk in that the Tories and Lib Dems had formed a coalition.

A few weeks ago, most economists feared Britain was on the brink of a fiscal crisis; they are much more optimistic today, especially with both parties committed to a tough round of fiscal consolidation. As long as the coalition continues to send out the right signals, and that the emergency budget contains a plausible plan to slash the deficit, it will have the support of the financial markets.

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First Person: Time to worry about house prices

It is time to start worrying about house prices again. The recovery in the property market over the past year makes little sense and could soon go into reverse again. Mortgage lending fell by a third in January and all objective measures suggest that housing remains thoroughly overvalued. A double-dip in the property market is one of the greatest risks facing British consumers, investors and the banking system. The downturns of the early 1990s and mid-1970s triggered dramatic property slumps.

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Next year will be distinctly painful

Let us start with the good news: it is almost inconceivable that the British economy won’t fare better in 2010 than it did in 2009.

We have just come out of the most severe recession since the 1930s, with our economy shrinking drastically; I would hate to tempt fate but there is little that could be thrown at us in the coming year that would precipitate another such dramatic contraction. Growth is likely to make a return; in fact, the economy almost certainly started expanding again in the last few months of 2009.

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Darling, take an axe to public spending

If you want to know in just how big a mess we are in, do not bother wading through the Chancellor’s figures.

Instead, you should consult a fascinating report put out every six months by the OECD, a think-tank for all the rich countries.

Its latest Economic Outlook includes a prediction which nobody in Britain has picked up but which is extraordinarily important: in 2010, public spending will reach no less than 54.1 per cent of our economy.

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First Person: Don’t blame bonuses

Passion is always the enemy of reason. This is true in politics as in everything else, and helps to explain why we have all got so excited about cracking down on bankers’ bonuses. “Wait a second,” I hear you say: “Bonuses paid out to greedy City boys fuelled the boom and bust and should therefore be capped, right?” That, after all, is the new consensus in Westminster and a view that resonates with a public thirsty for revenge.

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There’s no need to break up the banks

A few weeks ago, the received wisdom was that a good way to ensure financial stability would be to forcibly separate investment banks from retail and commercial banks. There was also discussion about imposing limits on bank sizes. Yet the Labour Party in its White Paper and the Tories in George Osborne’s response have now largely rejected those ideas.

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First Person: Crunch time is to come

BELIEVE it or not but Alistair Darling may actually be right that the recession will be over by Christmas.

But before you start uncorking the champagne, it is important to realise that this doesn’t mean a return to the good days. Total 1930s-style catastrophe has been averted, partly by luck and partly as a result of governments flooding the economy with liquidity.

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First Person: The good news first

Here is a little game you can play at your next dinner party. Ask your guests what they think happened to retail sales during the first couple of month of the year.

Their considered verdict will undoubtedly be that they slumped, probably by around 5 per cent. You can then stun your friends with the good news: according to figures published this week by the British Retail Consortium, total sales actually rose in February.

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First Person: Rate cuts not the best remedy

The latest interest rate reductions will not stimulate the economy — they may make things worse.

First, such dramatic cuts undermine confidence. When policymakers panic, people reduce spending and retrench, fearing worse to come.

Secondly, monetary policy operates with a lag. A weakening economy does not necessarily demand further rate cuts. If patients fail to recover quickly, the sensible doctor either gives the medicine time to work or changes the treatment, rather than desperately doubling the dose. An overdose could be worse than no action — it could even prove fatal.

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First Person: The deficit danger

It is difficult to know what is most depressing about the economy. Jobs are being slashed and homes being repossessed. So it is understandable that the catastrophic black hole at the heart of our public finances is not receiving the attention it deserves.

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First Person: Where to save now?

Here is a fact that will keep you awake at night. If you don’t have a traditional, final salary pension, how much do you think you need to save to make sure you maintain your lifestyle in your old age? Most people assume it’s around 10 per cent of their annual income. The answer, however, is nearer to 20 per cent. Truly frightening.

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