Hamish McRae: Sixty years ago, we were bankrupt. Then riches replaced rations and we're still dining out

In so many ways, the world economy has performed much better than anyone on VE Day could have expected

The course of history appears quite different if you are looking forward rather than imagining how things might work out. No one could have foreseen it at the time but the period since VE Day, 60 years ago today, has been the most successful period - at least in economic terms - in the history of the world.

The course of history appears quite different if you are looking forward rather than imagining how things might work out. No one could have foreseen it at the time but the period since VE Day, 60 years ago today, has been the most successful period - at least in economic terms - in the history of the world.

Indeed the first period, from 1945 to 1973, has been dubbed "a golden age" for it saw Europe and Japan's rapid recovery from wartime devastation - until the first oil shock brought this period to an end. And since then, despite four recessions or, at least, periods of slower growth - the mid 1970s, early 1980s, early 1990s and early 2000s - living standards have continued to rise in most of the developed world. And not just the developed world. Since about 1980, the two giant developing countries, China and India, have started to make real progress in increasing the living standards of their people.

But back in 1945 no one could see this. Britain was bankrupt. National debt was more than double GDP. The country had been able to continue financing the war only because of the US "lend lease" programme, which was abruptly stopped when Japan surrendered that August. In purely economic terms, it would have been much better for Britain had the war against Germany ended in 1944, as initially had been hoped, and the war against Japan run on rather longer. This would have given the country a lot more time to switch the economy to a peacetime basis while still benefiting from US financial support. There was also a widespread expectation of soaring unemployment after the war, for that had been the experience after 1918.

Nevertheless, in 1945 the UK economy was third in size in the world, after the US and USSR (see first graph). The GDP of $331 bn (in 1990 dollars) would make it about a quarter the size of GDP today. So it was quite big. It had also not suffered anything like the disruption that most of the Continent had experienced. In 1945, German GDP had fallen back to the level it had been in 1908.

The trouble, however, was that Britain was producing the wrong things for peacetime and there had to be a huge effort to build up exports. That required clamping down on demand at home. The controls of the wartime economy were retained: food rationing was carried on until 1951, far longer than in Germany; fuel was rationed; clothes were rationed.

Such was the export drive that while Britain had, in the late 1940s, the second-largest car industry in the world, the waiting list for a new car at home was several years. The great consumer boom of the 1950s lay far ahead. Meanwhile, second-hand cars were more expensive than new ones.

Companies, too, were controlled in what they could produce. Sometimes this resulted in ingenious solutions. The Rover car company wanted to build a UK-version of the Jeep for export to the then captive markets of the Commonwealth. But it could not get permission to buy enough steel. There was, however, plenty of aluminium about as wartime aircraft were being scrapped. So it made the bodies of its Land Rovers out of aluminium - and an icon was born.

In contrast to the drab world of shortages in the shops and at the petrol pumps, the country made a grand, shining advance in social care. Even today, Labour politicians will hark back to the creation of the National Health Service and the other reforms of the Attlee government. There is not so much admiration for nationalisation these days - we know now that this was a failed experiment. But the NHS and other social security reforms do stand out as a beacon of ambition in what were otherwise drab times.

Thanks in part to the NHS, but also to advances in drugs and other treatments, there have been great strides forward in public health since the war. The most remarkable statistic I have found has been the fall in infant mortality. In 1945 there were 49 deaths per thousand children under the age of a year: one in 20. Now it is one-tenth of that. We can remember, or at least envisage, the world of physical shortages, but it is much harder to think of a world without antibiotics (penicillin had just been developed at the Dunn School of Pathology in Oxford) and the tragic consequences of that.

The other, less easy to see, change in the world is the shift in the size and distribution of the world's population. The graph on the right shows the population in 1950. Since then the total has more than doubled from 2.5 billion to 6.4 billion now. The balance has changed too. Africa has grown from 228 million to 875 million; Western Europe, by contrast, has risen from 305 million to only 390 million. So whereas there were more people in Western Europe then, now Africa has more than twice as many. Then Asia, excluding Japan, accounted for half the world's population; now it is two-thirds.

In so many ways, the world economy has turned out to have performed so much better than anyone in London on VE Day had a right to expect.

It is not just a question of rising living standards or the rapid extension of the availability and choice of material goods - though the range on the Tesco shelves would seem astounding to anyone who remembers those brown ration coupons. Nor is it so much the technical advances, for with the possible exception of healthcare, what has happened is that the goods and services once available only to a very few are now available to the many. Think of private cars but also air travel, international phone calls, eating out. And some things have not changed much: after all, we still crowd into commuter trains.

But if we are generally a lot richer, I think the optimists in 1945 could have predicted that. The changes that would perhaps have been harder to predict would have been the social shifts rather than the economic ones: the retreat of marriage and religion; the changing role of women; and the move to a multicultural society.

And now, as we celebrate VE Day, what next? I suppose one thing has not changed at all. The challenge then was to make a better society - to use victory in a positive way. Broadly, the world has succeeded, for there has been no global war and wealth has started to spread - most notably to China and India. Now if we could maintain this - keeping the world economy going forward peacefully and sustainably for another 60 years - just think what might be achieved.

After the polls, will the bells start to toll for the British economy?

Now all that political stuff is over for a bit, what about the UK economy? The basic proposition seems to be that the election was held in the nick of time for Labour and things will now head downhill pretty fast.

There has certainly been a clutch of weak domestic data. Retail sales have gone negative for a couple of months, manufacturing is flat, and just this week there were some figures suggesting that the service sector is slowing a bit too. The instant conclusion of the pundits is that there is no chance that the Bank of England's Monetary Policy Committee (MPC) will now increase interest rates at its meeting tomorrow. A couple of weeks ago, the betting was for a rise in rates to 5 per cent. Now that would be a huge upset.

Indeed, the next move may turn out to be down. I like the candour of this comment from the Global Insight team: "Not only do we now expect the MPC to leave interest rates unchanged on Monday, but we are seriously wavering in our long-held belief that the eventual next move in interest rates will be up."

Their argument is that the downside risks the Bank has been worrying about are now materialising. The MPC will therefore do nothing for a few months to see whether the economy has merely hit a soft patch or whether this is the start of a sustained downturn.

That must be sensible. The global background is certainly one of softness, and we don't yet know whether that is a pause or something more sinister. So a wait-and-see policy makes sense from an international as well as a domestic viewpoint.

I wonder, too, whether we are missing something. All the talk about the need to increase taxation and/or cut government spending after the election may be depressing consumption. Just as the Bank is in wait- and-see mode, so too are British consumers.

Or at least they have been for some months. Now that the election is over, there is less excuse to batten down the hatches - building up savings for the storms to come.

So maybe, maybe, things will look up. We will know in a couple of months whether there is to be a post-election bounce or a post-election flop.

How will we know? Well, the figures to watch are for retail sales and the housing market, but this is one of those occasions when anecdotal evidence gives the early warning. Do the shops and pubs seem full or empty? Are people going for the cheaper bottle of wine? How long are the taxi queues?

And look on the bright side: if there is indeed a real flop, at least rates will be coming down before the autumn is out.