Leading article: From housing to the High Street, a nation battens down the hatches

Ever since the Northern Rock crisis struck, seemingly out of nowhere, last autumn, there has been a sense that this was just a warning clap of thunder and that the real storm still loomed some way ahead. This week, that storm suddenly came a great deal closer, with a host of indicators showing just how justified were the qualms of British voters and consumers.

The most telling came from Marks & Spencer, Taylor Wimpey and John Lewis – emblems all of a peculiarly middle-class, middle-England solidity. The first reported a 5 per cent drop in like-for-like sales over three months, which led to 25 per cent being wiped off its share value. The building company had to admit that it had failed to raise the finance it hoped for, almost halving its share value at a stroke. The value of the company is now a fraction of what it was when the two companies – Taylor Woodrow and Wimpey – merged a year ago.

It will have escaped no one that the pain being felt by ordinary consumers and by the building giants is connected. For the best part of a decade, rising house prices have encouraged homeowners to feel richer than perhaps they really were, and helped to fuel the consumer boom of which the then chancellor, and now Prime Minister, was so proud.

Rather than a reasonable correction that would have re-established the virtues of sound credit and given hope, at long last, to first-time buyers, however, what the country has experienced in recent months has been the worst of two possible worlds. Credit has been squeezed to the point where the number of new mortgages has shrunk exponentially, almost freezing the housing market, while inflation has simultaneously reared its ugly head.

Food and energy prices have continued their relentless rise. It is no wonder that almost every consumer in the land – but above all, perhaps, families with middle-class expectations – has felt the pinch. And all the signs are that things will get worse before they get better. The summer holidays will drive the point home as Britons travelling abroad are not only stung by fuel surcharges, but also learn how far the pound has been devalued against the euro.

And, for the first time in almost a generation, major job losses are on the horizon. Several thousand redundancies were announced last week in the beleaguered building industry. With haulage costs up and consumer spending down, it can only be a matter of time before they hit retailing and the services sector.

The Bank of England and the Government have both – rightly – rejected the American remedy of lower and lower interest rates to tempt consumers to continue spending. If, between them, they have encouraged anything, it has been a mood of austerity. This is, at least, a realistic, if cheerless, message. But it is one the Government might have embraced earlier, before it started overindulging its own appetite for the never-never. Pay restraint, first and foremost in the public sector, must be a key element in any recipe for surviving the months ahead. For many households there will be little choice but to reconsider spending priorities: the switch from M&S and John Lewis to discount retailers shows they may already be doing just that. And if higher fuel prices encourage more sparing car and energy use, then there should be an environmental upside.

But the Government, and the Prime Minister in particular, have their work cut out if they want to restore their reputation for sound economic management. Food and fuel price rises may reflect forces beyond national control, but Mr Brown knowingly presided over an economic boom that was puffed up by easy credit. This brand of prudence came with a high cost.