Poor retail sales, a sluggish housing market - so is this the end of the Brown boom?

On a one-year view, things will be fine. On a longer view, serious problems will make it seem less golden

Is the Brown economic miracle drawing to its close? The question has the most obvious political implications in the village of Westminster, but of course rather more important implications for the rest of us outside.

Is the Brown economic miracle drawing to its close? The question has the most obvious political implications in the village of Westminster, but of course rather more important implications for the rest of us outside.

The portents have not been good. Weak retail sales at Christmas apparently made it the worst festive season in the shops for 10 years. The housing market seems to have ground to a halt, with a sharp fall-off in the number of deals being done, as well as a plateau in prices. And new car sales, after record sales in the early part of 2004, slowed in the final weeks.

And yet and yet. If the past decade has taught us anything about the British economy it is wrong to be too gloomy, for the economy has consistently produced positive surprises. Global slowdown? We were the only major economy to keep growing after the turn-of-the-century bubble. An exposed sterling? The pound has been the most stable major currency in the world, far more so that the dollar, the euro or the yen. Pricing British labour out of world markets? Unemployment is the lowest in the developed world and there is little upward wage pressure. Inflation? At a retail level, virtually none.

The only two indicators flashing amber are the current-account deficit, now about 2.5 per cent of GDP, and the budget deficit, which will turn out around the Maastricht limit of 3 per cent of GDP, maybe a little higher. The former is probably acceptable - it is less than half of the size of the US current-account deficit. The latter is a bit worrying, but not because it threatens to break either the Maastricht rules or the Chancellor's own golden rule of only borrowing for investment.

No, it is worrying because we are running the deficit despite good growth. With growth last year at well over 3 per cent and the economy close to capacity, the Government ought really to be running a surplus. This has led to the expectation that spending will be cut and/or taxes will rise, with all the implications this could have for the Chancellor's reputation. But that would be after the election and, if you believe the Chancellor's figures, won't in any case be necessary.

So which view will prove correct? The gloomy one that things are slowing fast and the great Brown boom is drawing to a close? Or the cheerful one that, while there may be some slow-down, the UK economy will continue to canter on through this year and next, and Brown's legacy will be intact?

At the risk of confusion, I suggest both views are right: it is question of time-scale. On a one-year view, which almost certainly takes us beyond the election and probably takes Mr Brown beyond his present job, things will be fine. On a longer view, though, there are serious problems that will make the performance of Labour during its second term of office appear less golden than it would seem now.

There are several reasons for shorter-term cheer. We should not, for a start, be too concerned about the poor Christmas sales. Retail sales account for a decreasing proportion of our spending, for only about one-third of our consumption consists of buying things in shops. We spend money in other ways. Instead of buying presents in a shop, we give a plane ticket for a weekend in Prague. If we do buy goods, more and more we buy them online. Thanks to cheap imports, the price of many goods in the shops is falling, so that retailers have to sell more and more just to stay in the same place. And a lot of retailers - most notably Marks & Spencer and Sainsbury - have management problems that have undermined their performance.

Nor, I suggest, should we be too concerned about the housing standstill. Higher interest rates have pegged demand, but that was the idea. The Bank of England could not safely allow house prices to rise at double-digit rates, for sooner or later all would have ended in tears. So far it seems to have capped the market without causing it to collapse, which is fine. If prices do start to fall, expect an early cut in rates.

In any case, there is a technical reason for the slowdown. New rules on selling mortgages came in towards the end of last year, with the result that it takes longer and costs more to process each new loan application. So the housing market took a hit. Gradually, however, expect the supply of mortgages to rise again as the providers become more streamlined in their selling procedures and the backlog clears.

There are also other positive signs. Private-sector companies seem to be hiring again, so that the strong labour market is no longer propped up just by the Government's hiring spree, now coming to an end. Private investment has been looking better, too. And if you look globally, while growth is slowing a bit, the US economy seems set to grow at more than 3 per cent this year. True, sterling remains very high against the dollar, but it has eased a bit against the euro, which will help exports to Europe.

Taken in the large, then, I think one can make a very good case that the UK economy will continue to run pretty well through this year. There are problems ahead, but I think they are much more likely to come through in 2006 and 2007, than 2005. They certainly will not be evident this May.

Look longer and faces become longer too. Some things are beyond the control of national governments, even control-freaky ones. The global economic cycle will start to turn down during the next couple of years. There are unresolved problems in the US, which suffers from lack of savings and a huge external deficit, particularly to Japan and China. European growth, which has never really got going, now looks weak again.

None of this will be the fault of the UK government, but a cooler global economy will inevitably put more pressure on the UK and, in particular, on government finances. In a number of ways, the next chancellor will be handed a worse financial position than Mr Brown inherited.

Some things, however, are within the control of national governments, and the further we get away from Gordon Brown's chancellorship the less favourable the judgement is likely to be. Some of the criticisms are already evident: the increase in public spending without significant improvements in performance; the added complexity to the tax system; the intrusion of the Treasury into the detail of the spending departments; and the damage to private-sector pensions. It may be that the Treasury's power will be reduced after the election. If so, that will be a direct outcome of the way he has run it.

As for the economy, well, I suspect that this run of very good economic performance may be drawing to a close. The UK's tax and regulation advantage has narrowed. Many of the weaknesses in infrastructure have not been corrected and, when they have, they have been tackled in a wasteful way. And general demand has been puffed up by unplanned public borrowing, particularly in the past couple of years.

But this is all in the future. For now - and for May - the enemies of Gordon Brown would be wrong to expect bad economic news to tarnish his halo. Things will canter on a while yet - which is good news for him, and indeed for the rest of us.