I'M always reluctant to use the word 'recession.'
Sometimes I feel we can talk ourselves into a situation, but for some time now people involved in manufacturing have been telling me they are feeling the effects of industrial recession, and now it is clear all of us are feeling the pinch with rising fuel and energy prices and rising food prices.
The starkest examples when I go to the supermarket are eggs, bread and milk - the basics of a staple diet. A dozen large eggs cost £1.79 a year ago; they now cost £2.66 - up 48 per cent. A loaf of bread cost 90p a year ago; it now costs £1.16 - up 29 per cent. A pint of milk was 35p a year ago; it is now 41p - up 17 per cent.
There seems to have been a new word introduced into our vocabulary recently - stagflation! This is the twin threat of slowing growth and rising inflation. As a result I don't think we should expect interest rates to come down again in the near future.
In fact, if anything, we should be prepared for the rates to start rising again, but this may then send the wrong message to the rest of the world.
The Consumer Price Index now at 3.3 per cent is at its highest level since July 1992 and well above forecast.
In 1997 the inflation level was 1.6 per cent, so we have seen a doubling of this rate in the last eleven years. The Governor of the Bank of England has had to write to the Chancellor to explain why inflation has deviated from its target range, in that letter he said that inflation was likely to be significantly higher in the foreseeable future - rising sharply in the second half of the year, to above 4 per cent.
Of course, all countries are suffering from the effect of high commodity prices. But my worry is that Britain is actively making life more difficult for people, by putting higher taxes on alcohol, low-earners, and car owners.
We now need a long- term plan to guide us out of these present troubles and to make sure the same mistakes are not made again.
We must plot our path to sustainable public finances by growing the expenditure of Government more slowly than the economy grows overall - then we can continue to invest in the public services we value, but also try our best to safeguard the stability of our economy...SUPL: