Hamish McRae: Here's the secret of happiness for 2011: Keep your expectations low

There is a lot to be said for having low expectations. Actually 2010 turned out to be a rather better year for the UK economy than most people expected.

We started the year with a sense of foreboding: a lame-duck government, an economy that had only just started to grow again, and profound worries about public finances. As it turned out there is growth of around 1.8 per cent on the year, a generally downward trend in unemployment, a new government that had restored international confidence in the country's economic competence, and a strong stock-market performance. Not brilliant, but not too bad.

It would be wise to have pretty low expectations for 2011 too. The global recovery does look secure and world output is now well above its previous peak. But that is largely because of the performance of the emerging economies. Though they account for less than 40 per cent of world GDP, they look like delivering two-thirds or more of the total growth. Still, I have not seen anyone forecasting a return to recession in any of the larger developed economies, so I think that the UK should manage a similar growth performance in 2011 as it did in 2010, and maybe do a bit better.

But it will not feel great for at least three reasons.

One is that consumption will be squeezed. In round numbers we will have inflation running at 4 per cent and wages up only by 2 per cent (some people will, I fear, continue with no increase in income at all). There will be the higher taxes and the start of the spending cuts, neither of which has really begun. Even at the end of next year the deficit will still be huge.

Another reason is that monetary policy will start to come back to normal too. There is more of a debate about the pace of this than there is about fiscal policy, and there is a certain logic in saying that if you are going to have a much tighter fiscal policy you should try and offset this by having a relatively loose monetary policy. The trouble with this is that you cannot continue to have inflation way over the target range and have near-zero interest rates for ever. Sooner or later rates have to go up, and my guess would be that they will start to do so by the summer.

And the third reason for caution is that there will be external shocks. These are by definition unpredictable but you can see the areas in which they might occur. Another couple of eurozone countries will need to be rescued and that process will probably be mismanaged. I worry about a shock in China, now the world's second-largest economy. I worry about the US, where the authorities seem to think they can go on borrowing from the rest of the world, or print money, to finance their deficit. Commodity prices may slow global growth – and so on. True, you always have shocks, but these ones hit a convalescent economy, not a reasonably healthy one.

But – and this is the big point – recoveries always feel scruffy at this stage of the cycle. That is their nature. Have low expectations and you may be positively surprised. I hope so.