The good times roll on

The Bank of England keeps on raising interest rates, but the message doesn't seem to have reached the high street yet. People are continuing to spend as if there were no tomorrow. The latest figures show that the volume of retail sales increased by just over 7% in June compared with a year earlier.

Make no mistake, these are boom conditions. Sales in the UK have not declined for 13 months, the longest period of growth since recent records began.

As the former Conservative prime minister Harold Macmillan famously remarked almost 50 years ago - most of our people have never had it so good.

There are, of course, still serious pockets of unemployment and poverty, but taken as a whole the country is still riding a prolonged wave of prosperity, with very low unemployment and low inflation, yet booming consumer spending - and the feel-good factor is being further massaged by buoyant property prices.

This, more than anything, explains why the government is still enjoying high poll ratings despite the unpopularity of the Iraq war among so many of its supporters.

Just how long the good times can continue to roll is a moot point. The spending boom, like the property boom, has been written off a number of times in the past but has shown itself to have stub born powers of survival.

There are, however, already ominous signs that the balloon may soon start deflating. Spending in the shops in June is reckoned to have got a one-off boost from the excesses of the Euro 2004 football tournament and since then there has been anecdotal evidence of a slowdown, couple with similar evidence of a slowdown in the rate of increase of house prices.

The stock market, which is supposed to be guessing what the economy will look like 18 months hence, has also been weak lately, reflecting fears that the strong worldwide recovery may soon lose some of its momentum.

This will come as a relief to the trade figures. During the most recent three months, retail sales volume rose by almost 7%, while manufacturing output increased by only 1.4%. Small wonder that there was a socking deficit of over £3bn in the trade balance in May.

That aside, Gordon Brown can wallow in the fact that stronger-than-expected economic growth and booming spending ought to give the Treasury much-needed tax revenues and enable the chancellor to meet his tough fiscal targets in the run-up to the general election.

After the election, the storm clouds could gather, but no one is worrying about that too much right now.