Sean O'Grady: The worst is yet to come

There are three powerful reasons why the financial pain is far from over. First, the credit crunch is still with us, and still making life difficult for the banks and the rest of us. The uncomfortable truth is that the entire credit system remains reliant on life support from the Treasury and the Bank of England.

In Britain alone we've committed almost £1 trillion (a million million) to the banking system, and the strains are becoming unbearable. Sooner or later, the official money drip will run dry, the banks will shrink their lending yet again, and the economy will take another nasty hit.

Second, a reckoning for public finances cannot be long delayed. Only the most radical programme of spending cuts seems likely to fix Britain's soaring budget deficit, and that means higher taxes and deteriorating public services – longer waits for an NHS operation, higher rail fares, larger class sizes and so on. Almost all of Labour's proud boosts to public spending will be undone, irrespective of who wins the election. There are no "nice" cuts. The public sector will suffer wave after wave of redundancies. All this will disrupt the recovery.

Third, and oddest of all, the British seem to be morphing from a nation of confident, self-indulgent free-spending credit card junkies into fretful savers. We are paying off our consumer debts and putting more away for what we rightly judge are tougher times to come. Companies are doing the same. Great – for them. But for the economy it's a another disaster, depressing spending and growth. What a time for the nation to come over all sensible!