Julian Knight: Don't let's get nostalgic for 1981 and all that

At big moments it's not unusual to get a little nostalgic and look for parallels with the past.

And some spent last week comparing 2011 with the last great royal wedding year of 1981. That was a year of economic turmoil, mass unemployment, seemingly terminal industrial decline and an increasingly unpopular government cutting spending. The prices of staple goods, services and fuel were rocketing and the streets were ablaze with riots. Remind you of now? Yes, I thought so. But the differences are as great as the apparent similarities between 1981 and 2011.

The deficit is much worse and the crimping of government spending has to be harsher than 1981. But then again the public sector has had years of money splurged on it and is in a much better state than in 1981. The riots on the streets are not – as yet – tinged by race, and the lack of jobs is affecting – how can I put it? – the middle class. It's not Toxteth Liverpool 8 exploding but a Tesco Metro in Bristol. Tuition fees are not of the same magnitude as what in 1981 was a reaction to lack of jobs and systematically racist policing.

This time round there is no dismantling of the economy of one part of the country. A Thatcherite "harrying of the North" was taking place between 1979 and 1981: of the million-plus job losses, 93 per cent were north of a line between The Wash and Bristol. This time the pain has been more evenly spread. Manufacturing is actually doing better, and the protection of the bank moratorium on repossessions has meant only minimal numbers have lost their homes. Individual incomes are on average two and half times higher than they were in 1981: if you've still got a job and a mortgage then your true disposable income until very recently has probably never been so high.

One area now much worse than in 1981 is personal debt. We have nearly £1.5trn of it between us, and some who paid top price for property in the parts of the North and West will spend years, if not decades, in negative equity. Excessive debt narrows options in life and whereas it boosted our growth post-1981, over the coming years it will prove a major drag. But this aside, you're much better off living in Britain in 2011 than circa 1981.

Price of summer rate respite

A third of Britons predict an interest rate rise over the summer months, according to Lloyds – and they are almost certainly wrong. But I can't blame them: until about six weeks ago I thought a rate rise due some time over the summer. The Monetary Policy Committee (MPC) thinks inflation should fall back during the course of the year, making a rate rise unnecessary. Certainly the most recent inflation figures indicate a slight dip, and it seems the fear of job loss is keeping a lid on wage increases, which are running at around 2 per cent in the private sector.

But one swallow doesn't make a summer on inflation. There are still huge pressures from abroad – not least fuel – which could again push prices even higher. The MPC is taking a huge risk with inflation. Spare a thought for savers, many of them pensioners, who are relying on savings. They are earning on average 0.46 per cent against a real rate of inflation in key goods and services well above 5 per cent. They are getting poorer even faster than workers, who are earning 2 per cent increases on average.

The real danger is that by holding off on interest rates the MPC is embedding inflation as well as ensuring that when rates do go up they have to go up sharper and faster than they ought. Everyone talks about a double-dip recession in 2011. But this has now almost certainly been avoided, with last week's output figures – skewered negatively as usual by the Office for National Statistics' practice of early announcement and the volatile construction industry. But the fear a few years out has to be of a fresh recession to get domestic inflation back under control.

US reality check

The recent decision by Standard & Poor's to change its view of US government debt to negative is a huge knock to those – such as Shadow Chancellor Ed Balls – who have pointed to the Obama administration go-slow on debt reduction as a model for how we should be doing things here. The US has for a generation escaped the norms of deficit control due to its position as the world's biggest economy and the holder of the global reserve currency.

This comfy position of deficit denial could never be aped by Britain: we have a fraction of the population and a rather insignificant currency. But now with the downgrading of US debt, even the mightiest of countries has a clear sign that it can't continue to live in a fiscal never-never land.

Last week analysts put the odds of a proper downgrade of US government debt over the coming weeks at one in three. Such a situation would have been unthinkable before the credit crunch.

At some point, it's going to have to stop borrowing and what's more the dollar's position as the world's reserve currency looks ever more tenuous. If this is happening to the US, what does Ed Balls think would happen to the UK?

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Premier League Live
footballLIVE Follow all the Premier League action as it happens
The slice of Prince Charles and Princess Diana's wedding cake and the original box from 29 July 1981
newsPiece of Charles and Diana's wedding cake sold at auction in US
Life and Style
3D printed bump keys can access almost any lock
gadgets + echSoftware needs photo of lock and not much more
James Argent from Towie is missing, police say
peopleTV star had been reported missing
Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
i100(and it's got nothing to do with the Great British Bake Off)
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind the scenes to watch the latest series
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
Mario Balotelli pictured in his Liverpool shirt for the first time
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

    £35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

    DevOps Engineer (Systems Administration, Linux, Shell, Bash)

    £50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...

    Data Scientist (SQL, PHP, RSPSS, CPLEX, SARS, AI) - London

    £60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...

    Financial Technical Consultant (C++, C#, Finance, MSc, PhD)

    £50000 per annum: Harrington Starr: Financial Technical Consultant (C++, C#, F...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone