The boost to the economy provided by the public sector is also at an end.As these two motors splutter to a halt, what will take their place? Increased demand from abroad? Hardly. Plainly, people have as much debt as they can handle, are opting to save more and consume less, and in so doing are undermining the main factor which has provided most of the economic impetus since Labour came to power.Equally, the Government, following the great splurge of the past four years, recognises that it too has to rein back, and plans to halt the rise in public borrowing (chart two) by bringing the growth of public spending more in line with the growth of the economy. This plunge into the red was mainly to finance rapid growth in public spending, particularly on health and education.The two motors of British economic growth since 1997, both fuelled by borrowing, are rapidly losing power. This is true as far as it goes, but ignores all the other debt-related payments which people make, including the premiums on endowment mortgages and capital repayments.Chart one, compiled by Capital Economics, shows that the total of all debt-related payments now represents as big a burden as it did during the crisis years at the start of the last decade.
In the great sweep of history, it is obvious that "prudence and caution" is the last phrase which can reasonably be applied to the progress of the British economy over the past decade or so.The main driver of what has been an exceptional period of economic expansion has been a powerful consumer boom financed by an unprecedented increase in household debt. On entering the Treasury in 1997, Gordon Brown famously remarked that chancellors of the exchequer fall into two categories - those who fail, and those who get out in time. Two parliaments later, those words may return to haunt him for it looks increasingly as though, after an exceptionally good run, the world is finally turning against him. Unless he gets out soon, his carefully cultivated reputation for "prudence and caution" could be left in tatters. The Governor was concerned that a long period of falling import prices could be coming to an end, and that labour costs could be on the rise.Such factors may certainly delay the cut in interest rates which until a few days ago the markets were confidently expecting before the end of the year. But they should not be allowed to mask the underlying reality that a significant slowdown is on the way, one which is likely to carry interest rates well below current levels.In assessing the outlook over the medium term, it is important to escape from the chatter surrounding the issue of daily statistics, and look at the broader picture.
Both sides are prepared to take the case to the House of Lords.Mr King's pay rose to £268,137 this year, from £248,301 in the previous financial year, the annual report showed. The latter figure includes his pay as deputy governor until the end of June. His pay dwarfs that of Alan Greenspan, the head of the US Federal Reserve, who earns $180,100 (£98,800) a year.. Its total spending has risen to £249.7m this year, up from £241.6m last year.Mervyn King, the Bank's Governor, said the costs of fighting the BCCI liquidators' £850m lawsuit were "substantial" but stressed: "We have no doubt that it is right to do so and will take every opportunity in due course to press for the fullest recovery of our costs."Mr King, who made a brief appearance at the High Court on the 200th day of the trial on 18 May, said: "This is a case that should never have been brought, and we remain confident that it will not be successful."BCCI collapsed in 1991 owing more than £10m to depositors and creditors. Its barrister, Nicholas Stadlen, has said only one successful case of misfeasance has been reported in 300 years.The liquidators indicated their willing to settle out of court before the trial started in January last year, but Mr King has vowed to fight to the end to clear the names of the 22 officials accused of dishonesty. The charge of misfeasance is being brought because the Bank cannot be sued for negligence.