Matthew Lynn

Output is under pressure. Prices are starting to rise, living standards are getting squeezed, and every day brings fresh stories of one bank or another leasing office space in Frankfurt or Dublin. As the International Monetary Fund downgrades its growth forecast for the UK, whole edging up its predictions for our continental neighbours, Remainers can hardly believe their luck. Finally, all those predictions of disaster are coming true. Indeed, some are starting to describe Britain as the ‘sick man of Europe’ – a particularly potent phrase, since it was precisely to escape that label that we joined the EU in the first place more than four decades ago. The trouble is, there is a problem with taking the IMF too seriously. It is a terrible forecaster.

Who has the most over-inflated reputation in British politics? Theresa May’s air of calculating caution is long gone, no one has believed in Boris Johnson’s connection with ordinary voters for a while, and if anyone still thinks the dwindling tribe of hardcore Blairites blathering on about the radical centre know anything about what is going on they are keeping themselves well-hidden. But for some strange reason, Sir Vince Cable’s reputation for being able to read the economy with lethal accuracy remains intact. To much of the media, he remains the ‘man who saw the crash coming’. As the so-called Sage of Twickenham becomes leader of the Liberal Democrats later today, we will no doubt hear a great deal more about it.

As double acts go, it is probably not up there with Eric and Ernie, John and Paul, or even Liam and Noel. Even so, Mark and Phil, the Governor of the Bank of England Mark Carney and the Chancellor of the Exchequer Philip Hammond, certainly looked today as if they were working in tandem to try and steer the country towards a gentler version of Brexit than some of the harder men of that movement would prefer. Anyone listening to their speeches in the City this morning, postponed from last week in the wake of the Grenfell Tower tragedy, will have seen immediately what they were up to. Carney was at pains to point out that while the economy had been resilient in the immediate aftermath of the referendum vote last summer, there would still be tough times ahead.

Sterling plunges on the currency markets. Middle Eastern oil money flees London. A Prime Minister resigns in mysterious circumstances, and a government clings on to a vanishing majority. Sound familiar? In fact, it is a description of the run up to the sterling crisis of 1976, which forced the Labour Government to crawl to the IMF for an emergency bail-out, rather than 2017. But the parallels are spooky. As a catastrophic election result for the Conservative party is digested, sterling is already sinking like a stone. No one has any real idea who will be PM in a few months, whether there will be another election, or who might win it if another vote is held. We are not about to quite repeat the traumatic experience of 1976.

Sterling plunges on the currency markets. Middle Eastern oil money flees London. A prime minister resigns in mysterious circumstances, and a government clings on to a vanishing majority. Sound familiar? In fact, it is a description of the run-up to the sterling crisis of 1976, which forced the then Labour government to crawl to the IMF for an emergency bailout. But the parallels with today are spooky. As the catastrophic election result for the Conservative party is digested, sterling is already sinking like a stone. No one has any real idea who will be PM in a few months’ time, whether there will be another election, or who might win if a second vote is held.

Friday morning. A humbled looking Theresa May is muttering about how 'defeat means defeat', while Boris Johnson readies his leadership bid. Nicola Sturgeon is flying down to London with a list of demands for supporting a Labour-led coalition. And Jeremy Corbyn is finishing off some work on his allotment before hopping on a bus to the Palace. It might sound far-fetched. But the polls are so all over the place, it is no longer impossible that the Tories will lose their majority. If it happens, one point has been overlooked. Over in the City, stocks will be getting trashed, and the pound will be in free-fall. The markets have only just begun to contemplate what a Corbyn-led Labour Government would be like, but have hardly paused to give it any serious consideration.

Inflation is rising. Real wages are stagnant, and GDP is being revised downwards, putting us down there with the likes of Italy. If Theresa May had a script for the final fortnight of the election campaign it probably didn’t include figures like those. Today’s revision of the quarterly GDP number, down to a sluggish-looking 0.2 percent, from the initial 0.3 percent, will no doubt be seized upon by critics of the government, and by the increasingly battle-weary battalions of hardcore Remainers, as evidence that the wheels are finally coming off the economy, and the impact of a ‘hard Tory Brexit’ is finally being felt. In fact, however, it tells us something quite different. The UK is certainly slowing down in the first half of this year.

Unemployment is down. Retail sales are still strong. House prices are stable. Even the Great British Peso, the currency formerly known as the pound, has recovered much of its losses of the past year. After the vote to leave the EU, the UK economy has been remarkably strong. Even triggering Article 50, which some said would be the point when the whole pack of cards collapsed, doesn’t seem to have made any difference. With that wind in behind the UK’s sails, it is easy to understand why the Conservative party is feeling fairly secure about the state of the economy. And that may help explain why there is remarkably little in the manifesto to strengthen the competitiveness of the country. Sure, the commitment to reduce corporation tax to 17percent is maintained, and that is great.

Another day, another tax rise. So far in this campaign, the Labour party has rolled out one hit or another on the wealthy and big business just about every morning. The City is getting a Robin Hood tax on every financial transaction. Companies are getting a one-third increase in corporation tax. Anyone on more than £80,000 will see their income tax go up, and a new levy in high-earners will whack any business paying a star performer more than £330,000. They haven’t slapped a 50pc VAT rate on Range Rovers and Marc Jacobs crocodile handbags – but heck, it is still only Tuesday and there are still three more weeks of this stuff to go. As it launched its manifesto today, the party made the audacious claim that its programme was ‘fully costed’.

Big hikes in corporation tax. A sweeping programme of nationalisation. Large increases in the minimum wages, a 20-1 cap on executive pay, and, just in case it gets lost in that blizzard of promises, hefty tax increases on anyone earning more than £80,000 a year. Even in a normal year, the leaked Labour party manifesto has more than enough in it to make anyone in business or industry feel just slightly nervous. But hold on. This is hardly a normal time for the British economy. We know Jeremy Corbyn and John McDonnell would like to pretend it simply wasn’t happening, but 2017-22 will also see the most crucial, and in many ways scary, challenge the UK has faced since the first full bracing blast of Thatcherism in the early 1980s.

Better access to education. Tax cuts for anyone in the struggling middle. More affordable homes, and more money for the National Heath Service. There is nothing wrong with Theresa May seeking to stake out the centre ground of British politics and stop Brexit turning into a right-wing campaign to turn back the clock. But one might have imagined she’d use conservative means to achieve this, rather than raiding Ed Miliband’s last manifesto for ideas. The proposed price cap on energy companies is an alarming example of Mrs May’s left turn. There are so many ways in which the price cap is a genuinely terrible idea that it is hard to find space to list them all. But here are four big flaws to be getting on with.

Thirty billion? Fifty billion? Eighty billion, and we have to cover the cost of Jean-Claude Juncker’s martinis for the next decades, plus pick up the dry cleaning for every member of the European Parliament. The debate over Britain’s final exit bill for leaving the EU looks set to be among the most acrimonious issues as we negotiate our departure. But hold on. The first-class brains over in Brussels have made a slip. They are demanding that all the bills be settled in euros, rather than pounds. And yet they seem to have forgotten that their currency remains uniquely vulnerable to a catastrophic collapse. In fact, Philip Hammond should take that deal – because it might turn out to be very good one for the UK.

Its economy will be destroyed by leaving the single market. Losing access to European sales will destroy swathes of industry, and without free movement, employers will be crucified by skill shortages. Nicola Sturgeon is no doubt already preparing her lines for a vote on Scottish independence once the UK leaves the EU. Right now, that looks as if it could come a lot sooner than anyone imagined. It is reported that as soon as the Prime Minister Theresa May triggers Article 50 and starts the process of leaving the European Union, Scotland’s First Minister will announce plans for a second referendum on independence – a demand that May could find impossible to resist. But hold on.

It is possible that Mark Carney is not quite the last person to notice that the post-Brexit economy is positively booming. Jean-Claude Junker might be too busy working out new ways to ‘punish’ Britain to have paid attention to the statistics. Gina Miller is possibly working on some bizarre High Court action to keep us in the EU. There might even be a leader writer somewhere at the FT who is still worrying away about the collapse of the economy. But just about everyone else has woken up to the fact that ever since we voted to leave the EU, the British economy, far from falling off a cliff, seems to have got markedly better. So Carney may not be absolutely the last person to the party.

Unemployment is crucifyingly high. Factories have lost competitiveness. The share of euro-zone exports is in relentless decline. Industrial production is still lower than it was in 2008. The euro might have been a French idea – but France has turned into one of its main victims. The National Front Leader Marine Le Pen is certainly right to insist that France can’t recover while it is inside the single currency. There is a problem however. Her plan for getting out is completely deranged. The first round of voting in the Presidential election is only three months away, and the National Front leader seems almost certain to make the second round.

Industry will shrivel. Exports will dry up. The few remaining steel works will be closed down. And rugby will be banned. Okay, I made that last one up. But in a report today, the leaders of Welsh Labour and Plaid Cymru have laid out the case for keeping the principality in the single market - and warned that the economy will be virtually destroyed if they come out. 'Severing ties with the single market to control our borders would be an act of catastrophic self-harm,' according to the Welsh First Minister, Carwyn Jones. Like a kind of mini-me Nicola Sturgeon, it is possible to see what Jones, or certainly the Plaid leadership, might be playing it. They see membership of the single market as a way of driving a wedge between Cardiff and London, and winning more power for themselves.

Business cards. Check. Contacts book. Check. Stylish ski jacket. Check. If it is mid-January, the global elite, and certainly anyone who aspires to membership of that slightly nebulous group, will be packing their bags and flying, preferably by private jet, to the chic Swiss ski resort of Davos. Over the course of a few days, they will sort out the world’s problems, between munching canapés, and bagging some lucrative contracts for their bank. If globalisation has a spiritual headquarters, it is the World Economic Forum, to give it its full name. When the political scientist Samuel Huntingdon coined the term 'Davos Man', he turned it into a short-hand for the globe-trotting elite that moves seamlessly from business, to policy work, to academia and consultancy.

As confessions go, it was hardly the most revelatory. Cheryl Fernandez-Versini admits she has problems with relationships. Sir Philip Green accepts he made a bit of a hash of BHS. Ed Miliband owns up to struggling with bacon sandwiches. They would have all come as more of a surprise than the chief economist of the Bank of England, Andy Haldane, finally admitting that when it came to forecasting the impact of Brexit they were a couple of alphas short of a full algorithm. Well, thanks Andy. Who knew? The problem is that Haldane, and more importantly the Bank, is still deflecting the blame. Haldane argues there is a general problem with economic forecasting. There is some truth in that.

At the Westfield shopping centre in east London, the queues started at 2 a.m. on Christmas night. In Wrexham, people started lining up at three, getting ready for a six o’clock start. In Edinburgh, hardy shoppers braved flurries of morning snow to make sure they were first in line for Boxing Day bargains. Whatever else is happening at the close of this year, British shoppers are as indefatigable as ever in their determination to keep spending. Surely it wasn’t meant to be like this? In the wake of the vote to leave the EU back in June, mainstream economists were unanimous in their view that we would be in a recession by now.