Darker shades of Brown

Is Gordon Brown's luck finally starting to run out? His management of the economy - combining sustained economic growth with prudent finance - has won plaudits even from political opponents. Under his stewardship the economy has recorded its longest period of growth in living memory, with no quarterly falls in national output, let alone recessions of the kind the previous Conservative administrations clocked up twice in 10 years. Mr Brown has undoubtedly had more than his share of good fortune. He was lucky that the Tories left him rapidly improving public finances - thanks to a succession of tax increases of the kind the Tories now oppose. He was lucky to be operating during a period of low global inflation. He was lucky also that an unexpected buoyancy in consumer spending and house prices sustained the economy through difficult periods.

However, two related things have now happened to give Mr Brown considerable pause for thought. This week it was revealed that the budget deficit in the six months to September had not shown any reduction, in contrast to the chancellor's March forecast that the deficit would halve this year. The Institute for Fiscal Studies warned that if this trend continued, the chancellor would break his self-imposed "golden rule" for the current budget - everything except capital spending - to be in surplus over the economic cycle. Mr Brown predicted a cumulative surplus of 0.7% in the current cycle. The IFS says that on present trends there will be a deficit of 0.3%, even if this year's overshoot does not persist.

The second factor was yesterday's GDP figures, showing that the economy had expanded by only 0.4% in the third quarter - half the rate of the previous six months. This was mainly attributable to a sharp 1.1% drop in industrial production - traditionally an activity that Labour has championed - diluted by a 0.8% rise in output from the still booming service sector. Slower growth is one of the main reasons for the deterioration in the government's finances since it generates lower tax revenue. It is important to stress that there is no crisis at the moment. Even after the slowdown, the economy is still growing at 3%, compared with 3.6% earlier, though if the present slackening continues in the final quarter, it will be a different story. The problem for Mr Brown is that if he cannot balance the books when the economy is expanding as steadily as it has done until now, what are his options if it decelerates further in response to higher interest rates and slackening world trade?

Even then the UK economy - which will still be benefiting from sharp rises in public spending and the fortuitous tax revenues from higher oil prices - will look healthier than other major European economies, both in terms of budget deficit and economic growth. But that is not the political or economic point. Mr Brown himself laid down the criteria by which he asked to be judged - a budget surplus on current spending over the economic cycle. Success is therefore politically important to him as an individual and to Labour as a whole, since it has wrested the mantle of prudence and economic competence from a Tory party which has traditionally claimed it almost by divine right.

A crisis is not unavoidable. It is always possible to debate when an economic cycle starts and ends; and GDP figures are often revised - usually upwards - when more data is gathered. But that does not alter the fact that, whereas before this week Mr Brown would have needed bad luck not to meet his targets, he now needs good luck to meet them. One consequence of the prime minister's decision to carry on until the end of a third term is that Mr Brown will have to live with the consequences of his own actions. He may still succeed - but the task is now much more daunting than before.