Warning to the Chancellor: political reputations can go down as well as up

The context in which the Prime Minister made his suddenly famous comment about shares is interesting. "Yes, the stock market has fallen," he said on 19 June, "but it is still massively up on where it was five years ago."

He had been asked by the Leader of the Opposition how much longer a man of his age would have to work to make up the loss in pension resulting from the fall in share prices. While the question was being asked, the Chancellor of the Exchequer muttered in Tony Blair's ear that the stock market was still up £250bn since Labour came to power. If Mr Blair repeated the figure correctly, it is hard to see where Gordon Brown got it from, as the FTSE 100 index that day was a mere 5 per cent above the level that Labour inherited in 1997.

In just two weeks, even that meagre margin has gone, rendering Mr Blair's casual and misstated confidence embarrassing, but it is more than that.

Iain Duncan Smith had astutely connected the deeper mysteries of the Stock Exchange to an issue that hits people in their pocket, with a populist line about having to work four years longer to make up their pensions. Voters increasingly understand that their personal fortunes are affected by the ups and downs of the stock market. The question is whether they give politicians credit for the ups or blame them for the downs. On the whole, they do not – nor should they.

Indeed, Mr Blair prefaced his foolish boast about the stock market being "massively up" by saying how "absurd" it was to hold the Chancellor responsible for the fall.

What does matter is how Mr Brown responds to it. There has been one worrying wobble. On the day of his Mansion House speech last week, the Chancellor hinted that he wanted to see interest rates rise in order to check house-price inflation. It just happened to be the day that the WorldCom fraud pushed American and British shares even lower, effectively ruling out that option at yesterday's meeting of the Monetary Policy Committee.

More awkwardly, Mr Brown is to announce, later this month, the non-NHS public spending plans for the next three years. Yet his raised forecast for growth made in the Budget three months ago already looks out of date.

Mr Brown's plausible claim to be Britain's best postwar Chancellor rests, so far, on two things. One is his decision to contract out interest-rate decisions to an independent Bank of England. The other is his avoidance of mistakes in the policy areas left to him. But remember that Nigel Lawson was well regarded, not least by himself, as the author of an economic "miracle" five years into his chancellorship, in 1988. And then what happened?

This, then, is the moment that will test Mr Brown and his next-door neighbour. Of course, the return of share prices to their level of five years ago has almost nothing to do with government policy, but it could still be politically damaging. Rather unfairly, it gives the impression that the economy has failed to make any progress at all over the period. More to the point, it underlines the folly of claiming to have ended "boom and bust"and puts a price on people's confidence in the future.

Except for a few days during the petrol-price protests of September 2000, the Blair government has appeared in control of events. Now, suddenly, it appears to be at the mercy of outside forces. Most governments reach a crunch point on the economy sooner or later. How we got here may not be Mr Brown's responsibility. How we get out again certainly is.