I would hate to be in Mervyn Kings shoes just now.
Last week the governor of the Bank of England had to defend himself in front of the Commons Treasury Select Committee against charges from some MPs that the recent spate of interest rates increases had brought the country to the brink of a real slowdown.
Although King did agree that recent economic growth had not kept pace with expectations, he told MPs that he felt the cooling did not seem to be a portent of a real slowdown. He might possibly have said this while keeping his fingers crossed behind his back!
Apparently the chancellor is having to re-jig his borrowing plans due to a lack of tax income and some commentators predict Gordon Brown may be forced to increase taxes if Labour stays in power after the next election not a good message to take to the ballot box.
You only have to go out on to the high street to see the impact that interest rates rises have had on consumer confidence or more importantly consumer spending. The shops might feel just as busy as any other Christmas, but retailers are worried. Retail analyst FootFall says that sales will have to increase by between 7% and 8% over the remaining few weeks for this Christmas to be able to match the success of 2003 and 2002.
Many retailers, especially the major electronics chains, rely on the Christmas and winter period for the bulk of their sales. This year, they say, customers are reigning in their spending, pummelled by growing interest rates and worried by the resultant drop in the value of their houses.
And that of course brings us back to square one. The last year and a halfs cycle of interest rate increases came as a result of fears by the Bank of Englands Monetary Policy Committee (MCP) that soaring house prices were driving up personal debt to such astronomical heights that the economy would be pushed into a slowdown!
Messages from the mortgage and housing market remain fairly mixed, with some lenders reporting a drop in the number of borrowers, whilst others say the situation has either levelled off or is in fact looking up. Either way, there is still no sign of the all out crash that many people predicted at the start of the year.
And of course it is not all bad news. Manufacturing output is up and Governor King has hinted at a difference of opinion amongst the MCP, which should indicate no more interest rates increases, and could possibly mean a cut early in the New Year. This is already being priced into long term interest rates.
But best of all, because retailers are having such a tough time at the moment, we are likely to see some major price cutting closer to Christmas and probably a lot of good deals in the New Year sales. Perhaps this will get the bargain hunters out again, encourage more optimism amongst the public and perhaps even help stimulate the housing market for 2005.