David Prosser: Accentuate the negative

Outlook Day by day, the economic data continues to be patchy. On the one hand, yesterday's public finances were dire. On the other, July's better-than-expected retail sales and an increase in mortgage lending, albeit from a low base, might herald the possibility of sunnier times to come.

Sadly, the latest bad news is likely to have longer-lasting impact than the good. Higher retail sales reflect Britons' higher disposable income right now in an era of lower interest rates and fiscal stimulus, as does higher mortgage lending, in that some of that is down to increased demand.

The public finances, however, can only spell bad news for disposable income. A raft of tax rises, starting with the restoration of VAT to 17.5 per cent this December, is already planned for the next 12 months. If the Chancellor has undercooked his borrowing forecasts, as increasingly looks the case, the tax burden will have to rise even higher.

Given that borrowing is likely to take two parliamentary terms at least to get on top of, there's little prospect of tax cuts any time soon. Britain doesn't seem to have got that message just yet – if it had, retail sales would be falling and almost no one would be taking out a new mortgage.