Over the past quarter of a century, China accounted for a third of global growth and exported low inflation. During this time there were countless predictions of imminent economic doom. Such pessimism may be viewed like a stopped clock: of no use in telling the time but on occasions it will be right. The fear for some is that now might be one of those times. Growth is sluggish, youth unemployment may be one in four and prices are falling, feeding fears of deflation. Although the central government’s finances are sound, a significant problem is debts in local government and the property sector.

Three issues come to the fore in the wake of today’s Budget. First is the fundamental challenge of Britain’s weak economic growth. Second is that while the 2p cut in National Insurance was welcome, it should not divert attention from the need for tax simplification and reform and that the UK’s tax take is high and still rising. Third is the challenge of low public investment, and the challenges facing non-ring-fenced departments in coming years.

The UK’s debt position is a concern. The current level of public sector debt is high, and while it may improve in the next few years there is a serious danger that the UK will fall into a debt trap before the end of this decade. This occurs when two criteria are met. One, is the ratio of government debt to GDP exceeds 100%, meaning the stock of public debt exceeds the size of the economy. The second is that the rate of economic growth is lower than the rate of interest paid on the debt. In such a situation the ratio of debt keeps rising. The future relationship between growth and interest rates is a critical component of the outlook, as is action taken directly to improve the public finances.