Chris Harman is right to say that Gordon Brown is very lucky (In Perspective, May Socialist Review).
His luck is partly that down to growth in the financial services sectors boosting investment and jobs which have fallen or stagnated elsewhere.
However there are also signs that his luck may be running out. The significant rise in inflation means that the Bank of England is under ever-increasing pressure to get on top of it by raising interest rates. But rising interest rates threaten to slow down or even deflate the housing market. For while inflation in the retail sector has been low, house price inflation has been rampant.
It is against these rising asset values for home owners that credit growth has also been rampant, fuelling consumer spending and increasing the now endemic trade gap on the balance of payments. In turn mortgage lending institutions have been getting more and more reckless in their lending criteria. Mortgages are now easier to come by at earnings to borrowing ratios that would have been unthinkable just a few years ago. Higher interest rates threaten to make it much more difficult for over-stretched borrowers to service their mortgages and there are already signs of rising repossession rates.
Some mortgages are now being issued here at eight times earnings, the average size of mortgages rose by a quarter in the first three months of this year, house prices are six times average earnings which is 20 percent higher than before the last British housing crisis in the early 1990s and debt to disposable income ratios in the UK are currently at 162.9 percent compared to 137.3 percent in the US. Together with rising interest rates, the British housing market looks increasingly overstretched.
One issue on which New Labour can boast success is Brown's stewardship of the economy, but even this now seems in jeopardy, with potentially even more disastrous consequences for Labour's popularity.
Rob Hoveman and Graham Turner