That shows in the widening current account deficit, which as you can see from the one graph is now as large as it was in 1988, measured as a percentage of GDP.In one sense a current deficit is a positive sign It shows that the economy is attracting foreign investment. The balance of payments has to balance, so if you have a lot of money coming in on capital account it has to be matched by an outflow somewhere else – on current account. You don’t want to be like the Japanese, who are running an enormous current account surplus that then flows abroad.But there is a safety limit here. It’s great to be a magnet for international investment but you don’t want to be too reliant on it It’s always hard to know the motives of foreign investors. Is the money arriving in search of a quick return and so likely to leave just as swiftly? Or is it because of the attractiveness of the UK as a place to do business, in which case it will probably keep coming in? We don’t need to be alarmist about this, at least not yet.

But you can see a set of circumstances where if the balance of payments deficit becomes a problem, the Government’s economic record could look much less positive.At the moment Gordon Brown must feel he can do no wrong Politically he has never been stronger. He must expect that his conduct of economic policy will be Labour’s strongest card at the election. If things wobble a bit during the next three months, that can be blamed on fears about the US economy rather than the Government’s own record. And the success of the Chancellor’s policies is genuine.But look again at those graphs. Bit like 1988, isn’t it? And remember what happened in 1990.. The events of the last couple of days have, for obvious reasons, focused attention on the election. They will probably continue to focus attention on Labour’s strongest electoral card, the healthy state of the economy, over the next couple of months as Gordon Brown’s department steps forward.

The events of the last couple of days have, for obvious reasons, focused attention on the election. They will probably continue to focus attention on Labour’s strongest electoral card, the healthy state of the economy, over the next couple of months as Gordon Brown’s department steps forward.
On most rational measures the claim to economic competence appears pretty complete: the lowest inflation for 30 years, the lowest unemployment for 20 years, the longest period of uninterrupted growth, the largest Budget surplus and so on. But, as is widely recognised, the economy might be at a turning point. Some sort of downturn is evident in the US and there are fears it might spread here. The fact that the Bank of England’s Monetary Policy Committee is split almost evenly on the need to cut rates echoes these fears.There are two ways of looking at this. One is to monitor each bit of evidence as it comes through, trying to judge to what extent it supports the “let’s cut interest rates to head off recession” view – or the “everything is OK” alternative There’s nothing wrong with this. Indeed anyone who wants to understand the condition of the economy has to trudge through the data and try to understand what the figures are trying to say.But most voters are not going to follow economics that closely For them there is the other way of judging the Government.

This is to look at the longer-term position of the economy, recognising its current success but asking whether that success will be sustainable for the next four or five years.In economic policy, each party has its ghost. Labour has the ghost of 1976, when excessive public spending led to a balance of payments crisis, a bail-out from the International Monetary Fund and subsequent sharp cuts in expenditure. Gordon Brown’s tight rein on public spending (up to now) and his emphasis on “prudence” reflect a determination never to put a Labour government in that sort of situation again.The Tories have the ghost of 1988. That was the runaway boom that took place when Nigel Lawson was Chancellor. It preceded the early 1990s recession and almost certainly made the slump worse than it otherwise would have been.Question: If Labour seems to have laid to rest its own ghost of 1976, might it have awakened the Tories’ ghost of 1988?One aspect of 1988 is not evident. There has been no rise of inflation, or at least of inflation in current goods and services. There has been some asset inflation, particularly in house prices, though not nearly so dramatic and dangerous as in 1988.