Sean O'Grady: Now Brown must tell us how he can defeat stagflation

Rule by rule, target by target, pledge by pledge: they're falling like ninepins. Yesterday's open letter from the Governor of the Bank of England to the Chancellor confirmed that the Government's target for inflation to be 2 per cent "at all times" – the jewel in the crown of its economic strategy – is now a glorious irrelevance.

Inflation will not return to the official target until 2010 or 2011. For some of that time it will be double the target rate. Concentrated on food and fuel, inflation will hit poorer households and pensioners hardest. Yet even as inflation soars, output is slowing with the possibility that we will see at least one quarter of what economists call "negative growth" – that is, the economy will shrink for the first time since 1992. Stagflation is back.

Mr Brown's promise that there would be "no return to boom and bust" is looking pretty foolish now. Why didn't anyone tell him that not even he could abolish the trade cycle? Ministers have long been fond of reciting how many quarters of uninterrupted growth the UK economy has enjoyed. We will hear less boasting about that in the near future.

Living standards will be depressed, in any case, as the Bank makes clear. Wages will not keep up with rising prices, the downside of our prized "flexible labour market". The public finances are in such a poor state that ministers will only be able to meet their own fiscal rules via statistical scams. Even then, Alistair Darling may have to trim public spending plans. While much has been done, the Government will almost certainly miss its target of halving the level of child poverty by 2010. And with housing starts at their lowest ebb since 1945, the Government's ambitious targets for house building look hopelessly optimistic.

Forget the 10p rate, the secrets left on trains and the 42 days revolt. New Labour won and retained power because they were trusted on running the economy. Now the economic "framework for stability" that Mr Brown promised – and delivered for most of his time at No 11 – is crumbling, and his plans to reduce poverty with it. Maybe, like Mervyn King, Mr Brown should write an open letter to explain how it all went so wrong, and how he proposes to put things right.