Economic View: There’s no cause for panic when growth defies the gloom-mongers. But we can’t cheat gravity for ever

Amid market shocks and a US slump, the UK economy remains resilient. Tough times will come, though, and we should prepare for them now

The other main market phenomenon that occurred last week was the sign of a turn in commodity prices. Instead of going endlessly up, some at least started to come back down.

The gold price dipped, which was a symbolic change, because gold does not have many economic functions, but an interesting one nonetheless. More important, oil fell back a bit and food prices seemed to ease up as well.

It is far too early to suggest that this is a turning point in the commodity cycle, and the oil price seems likely to stay pretty high for the foreseeable future, given the tight supply/demand equation. But of course any easing is welcome from both a human point of view (poorer people are harder hit by rising food prices) and an economic one (lower inflation provides an opportunity to offset the economic downturn by cutting interest rates).

It is also evident that there have been distortions that have made matters worse. According to the International Monetary Fund, roughly half the rise in global maize production last year was for turning it into ethanol for vehicle fuel. The IMF comments that the US Energy Bill will continue to raise demand for this purpose.

This increases other food prices, partly because of higher animal feed costs and partly because land is diverted from growing other crops.

The IMF reckons that there will be a fall in commodity prices in the months ahead, but it does not expect a sustained decline for a number of reasons. Aside from the switch of food crops to producing biofuels, these include continued demand from developing countries, and the fact that with most commodities there is a long gap between prices rising and there being an increase in supply.

So do not expect commodities to become really cheap again.

Still, last week was a useful reminder that markets never move in one direction for ever and that while there is no "right" price for commodities, there are periods when prices diverge materially from their long-term trends.

There is one further small bonus from a fall in one particular commodity. The cheaper gold becomes, the less stupid our Prime Minister will look for selling a large chunk of our gold reserves at a bargain-basement price back in the late 1990s.

Funny, isn't it, that he has not referred to that decision as often as he has to the one about making the Bank of England independent? The Bank, to its credit, advised against the timing of the sale.

Oil, food and gold show that commodities don't have to be precious

The other main market phenomenon that occurred last week was the sign of a turn in commodity prices. Instead of going endlessly up, some at least started to come back down.

The gold price dipped, which was a symbolic change, because gold does not have many economic functions, but an interesting one nonetheless. More important, oil fell back a bit and food prices seemed to ease up as well.

It is far too early to suggest that this is a turning point in the commodity cycle, and the oil price seems likely to stay pretty high for the foreseeable future, given the tight supply/demand equation. But of course any easing is welcome from both a human point of view (poorer people are harder hit by rising food prices) and an economic one (lower inflation provides an opportunity to offset the economic downturn by cutting interest rates).

It is also evident that there have been distortions that have made matters worse. According to the International Monetary Fund, roughly half the rise in global maize production last year was for turning it into ethanol for vehicle fuel. The IMF comments that the US Energy Bill will continue to raise demand for this purpose.

This increases other food prices, partly because of higher animal feed costs and partly because land is diverted from growing other crops.

The IMF reckons that there will be a fall in commodity prices in the months ahead, but it does not expect a sustained decline for a number of reasons. Aside from the switch of food crops to producing biofuels, these include continued demand from developing countries, and the fact that with most commodities there is a long gap between prices rising and there being an increase in supply.

So do not expect commodities to become really cheap again.

Still, last week was a useful reminder that markets never move in one direction for ever and that while there is no "right" price for commodities, there are periods when prices diverge materially from their long-term trends.

There is one further small bonus from a fall in one particular commodity. The cheaper gold becomes, the less stupid our Prime Minister will look for selling a large chunk of our gold reserves at a bargain-basement price back in the late 1990s.

Funny, isn't it, that he has not referred to that decision as often as he has to the one about making the Bank of England independent? The Bank, to its credit, advised against the timing of the sale.