Peter Hoskin

Hard Times

Hard Times
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In the wake of Alistair Darling and Mervyn King's speeches at Mansion House last night, most of the papers are majoring on the sorry state of our economy. Both Darling and King indicated that this is the worst shape it's been in for around 15 years, and warned that there's worse to come. For the gloom-inclined, we've pulled out some of their main points over on Trading Floor.

And whilst we're on the subject of the economy, Anatole Kaletsky's article on inflation in this morning's Times is essential reading. In it, he expresses doubts over Gordon Brown's ability to handle inflationary pressures in the right way:

“The second genuine reason to worry about the inflation figures is the challenge they pose to the Government. Will Gordon Brown withstand demands for public sector pay increases to compensate for the rising cost of living? If he gave in to such demands, the result really could be a 1970s-style wage-price spiral. Alternatively - and more probably - the Bank of England would respond to spiralling wages by sharply increasing interest rates. That, in turn, would trigger a deep recession and mass unemployment more reminiscent of the Thatcherite 1980s and 1990s than the 1960s and 1970s.

From this standpoint, probably the biggest worry has been Mr Brown's surprising combination of weakness and short-termism since he became Prime Minister. If he responds to minor hiccups such as the 10p tax row by giving away £2.7 billion, one wonders how he would react to a genuine challenge to his authority on the scale of the Winter of Discontent?”

Problem is, the 'Winter of Discontent' allusions may not be misplaced. The FT reports this morning on Unison's efforts to get 800,000 of its members to strike. If they do, will Brown be up to the challenge? Or will he buckle, as Kaletsky fears?