Don't be so miserable, Gordon, it's good news

Economic news in the past few days has been staggeringly good. The headline inflation rate at 1.1 per cent is the lowest since 1963, the frenzied summer of the Profumo Affair and Harold Macmillan's last hurrah. Unemployment figures were down yet again to 1.21 million, the lowest figure since 1980, when voters were coming to terms with Margaret Thatcher, and still not liking what they saw. Both statistics come from a different era in modern British politics.

Mrs Thatcher would have known exactly how to react. She would have bustled across Downing Street, looked the cameras in the eye and said: "Rejoice, rejoice." But there was no celebration last week; rather, the wringing of hands. The Chancellor of the Exchequer managed to make his announcement that he expected the British economy to grow at 2.75 per cent next year, and perhaps by 3 per cent in 2001 sound like bad news. With his parsimonious Scottish manner, Mr Brown suggested that he will go down not as the Iron Chancellor, but as the leaden one.

Because economic prospects are so promising, Mr Brown agreed with the monetary policy committee's decision to raise interest rates to 5.25 per cent. This is emblematic of New Labour. The Chancellor seems to have developed a Blairite attitude to industry, which is that it is history. Perhaps we should not blame him because, in Mr Brown's own constituency, industry is very nearly history. But the British economy cannot survive solely on the magnificent baubles provided by the service industries. Not even on the gold-paved streets of the City of London - as we shall soon see.

Good economic news should not be allowed to obscure the dangers that lie ahead, and, in any trade cycle, those always exist. But the Chancellor has become too acutely aware of the threat that labour shortages will lead to wage inflation. He openly admires the MPC for having taken a hedge against it, despite the wounds this opens in industries manufacturing goods for export. The proceedings of the TUC last week do not arouse fears of a ravenous beast capable of frightening employers into paying inflationary wage increases. If house prices are the problem, interest rates will have to rise by 2 per cent to bring them down - too high a price, to exert control in an aberrant market.

Since there is no sound economic or statistical reason for the Chancellor's tight-lipped caution in the face of success, we must look for a psychological one. His age may be the key to it. Mr Brown was 12 when inflation was last at 1.1 per cent, and only 19 when unemployment was last as low as it is now. Like the rest of his generation, the Chancellor learned to expect the worst of the British economy. His twenties were spent contemplating stagflation, that combination of rising inflation and unemployment that was the despair of Keynesians everywhere. Growing up, Mr Brown's instinct was to expect one variety of economic disaster after another. The psychology is founded on failure, and the effect of it is to make good news hard to believe in.

This instinctive pessimism is defined now by popular attitudes to inflation. Instead of applauding an inflation rate that meets the Treasury target of 2.5 per cent, we tend to deplore the fact that our investment returns are falling, and recall more cheerfully the days not so long ago when the return was 8 per cent, even if that was a consequence of higher inflation. The concept of the real rate of interest is proving difficult to absorb.

Attitudes are unlikely to change until they are formed by a generation that has grown up with low inflation. In the meantime, most of us will remain incredulous, suspicious and unhappy. It is a miserable way of coping with good news. It would help if the Chancellor could rejoice. Even a bit.

Hidden City

BRITAIN'S most successful exporter is the wider City of London - the one that includes Canary Wharf and Edinburgh. Last week, British Invisibles published its annual City Table, and it showed that overseas earnings in the UK financial sector reached a formidable record of pounds 31.9bn in 1998, an increase of a quarter on 1997. Some of those City bankers and traders may actually be earning their bonuses. But, believe it or not, those statistics do not tell the whole truth.

Since Big Bang 1986, so much of the City has been sold off to foreign banks and securities houses that British companies now hold only a minority shareholding in the industry. This sale produces a statistical paradox; whenever foreign banks lose a lot of money, as they did in 1998, they pump new capital into London and that appears as an increase in investment income. Last year, this was counted in billions lost when banks could not close loss-making positions in derivatives markets. Those losses on derivatives came to more than pounds 3bn. A second boost, the nation's invisible earnings in hard times, is attributable to banks reducing risks by increasing the spreads on their loans. The margins on lending to, and borrowing from, non-residents amounted to pounds 5bn last year, a seven-fold increase on 1997.

The record of London's financial sector is remarkable, but a more stable year like this one means that next September's City Table will almost certainly show falling net overseas earnings. The fetching paradox is that this ought to be interpreted as good news.

What price romance?

IT is a sure way to take the romance out of the works of the greatest romantic artists, but modern accounting methods now employ studies of discounted cashflows and make 10-year income projections to arrive at an arithmetical calculation of an artist's worth. Using this prosaic method, the music publisher Boosey & Hawkes decided to acquire the copyright on 40 works by Rachmaninov, including his most popular piece, the Rhapsody on a Theme by Paganini. Since his wonderfully extravagant music has only 14 more years in copyright in the UK, the future cash projections must have been inspiring. But Boosey & Hawkes knows a thing or two about turnover on Rachmaninov's music. It controls the copyright of the Rach 3 (his third piano concerto), which provided the climax of the award-winning film, Shine. "That was good for us," says Boosey & Hawkes' chief executive, Richard Holland.

But what price do you put on Rachmaninov's art? A decent sum of around pounds 3m for 40 works and arrangements, apparently. Discount the cashflows, and just think how much the Britten estate must be worth.

Arts and Entertainment
TV Review: rSabotage, a major meltdown and, of course, plenty of sauce
News
newsVideo for No campaign was meant to get women voting
News
A photo of Charles Belk being detained by police on Friday 22 August
news
News
i100'Geography can be tough'
PROMOTED VIDEO
Sport
Louis van Gaal looks dejected after Manchester United's 4-0 defeat by MK Dons on Tuesday night
sport
News
Actor, model and now record breaker: Jiff the Pomeranian
Video
News
REX/Eye Candy
science
News
i100
News
Down time: an employee of Google uses the slide to get to the canteen
scienceBosses are inventing surprising ways of making us work harder
Sport
Alexis Sanchez celebrates after scoring his first goal for Arsenal in the Champions League qualifier against Besiktas
sportChilean's first goal for the club secures place in draw for Champions League group stages
Arts and Entertainment
Amis: 'The racial situation in the US is as bad as it’s been since the Civil War'
booksAuthor says he might come back across Atlantic after all
Extras
indybest
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Google Doodle celebrates the 200th birthday of Irish writer Sheridan Le Fanu
tech
Arts and Entertainment
Vinyl demand: a factory making the old-style discs
musicManufacturers are struggling to keep up with the resurgence in vinyl
News
i100
News
In Eternal Sunshine of the Spotless Mind Jim Carrey and Kate Winslett medically erase each other from their memories
scienceTechnique successfully used to ‘reverse’ bad memories in rodents could be used on trauma victims
Arts and Entertainment
Singer Pixie Lott will take part in Strictly Come Dancing 2014, the BBC has confirmed
tv
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

C# Developer (C#, ASP.NET Developer, SQL, MVC, WPF, Real-Time F

£40000 - £48000 per annum + benefits+bonus+package: Harrington Starr: C# Devel...

C# Swift Payment Developer (C#, ASP.NET, .NET, MVC, Authorize.N

£45000 - £60000 per annum + benefits+bonus+package: Harrington Starr: C# Swift...

DevOps Engineer - Linux, Shell, Bash, Solaris, UNIX, Salt-Stack

Negotiable: Harrington Starr: A fast growing Financial Services organisation b...

Trade Desk FIX Analyst - (FIX, SQL, Equities, Support)

£50000 - £60000 per annum + excellent benefits: Harrington Starr: An award-win...

Day In a Page

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
Amazon is buying Twitch for £600m - but why do people want to watch others playing Xbox?

What is the appeal of Twitch?

Amazon is buying the video-game-themed online streaming site for £600m - but why do people want to watch others playing Xbox?
Tip-tapping typewriters, ripe pongs and slides in the office: Bosses are inventing surprising ways of making us work harder

How bosses are making us work harder

As it is revealed that one newspaper office pumps out the sound of typewriters to increase productivity, Gillian Orr explores the other devices designed to motivate staff
Manufacturers are struggling to keep up with the resurgence in vinyl records

Hard pressed: Resurgence in vinyl records

As the resurgence in vinyl records continues, manufacturers and their outdated machinery are struggling to keep up with the demand
Tony Jordan: 'I turned down the chance to research Charles Dickens for a TV series nine times ... then I found a kindred spirit'

A tale of two writers

Offered the chance to research Charles Dickens for a TV series, Tony Jordan turned it down. Nine times. The man behind EastEnders and Life on Mars didn’t feel right for the job. Finally, he gave in - and found an unexpected kindred spirit
Could a later start to the school day be the most useful educational reform of all?

Should pupils get a lie in?

Doctors want a later start to the school day so that pupils can sleep later. Not because teenagers are lazy, explains Simon Usborne - it's all down to their circadian rhythms
Prepare for Jewish jokes – as Jewish comedians get their own festival

Prepare for Jewish jokes...

... as Jewish comedians get their own festival
SJ Watson: 'I still can't quite believe that Before I Go to Sleep started in my head'

A dream come true for SJ Watson

Watson was working part time in the NHS when his debut novel, Before I Go to Sleep, became a bestseller. Now it's a Hollywood movie, too. Here he recalls the whirlwind journey from children’s ward to A-list film set
10 best cycling bags for commuters

10 best cycling bags for commuters

Gear up for next week’s National Cycle to Work day with one of these practical backpacks and messenger bags
Paul Scholes: Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United

Paul Scholes column

Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United
Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

Kate Bush shows a voice untroubled by time

A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
Robot sheepdog technology could be used to save people from burning buildings

The science of herding is cracked

Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

This tyrant doesn’t rule

It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?