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It's hardly the golden hello Alistair Darling might have wished for: barely has he got his feet under the table at Number 11 Downing Street, the Chancellor's (finance minister) official residence, but borrowers in Britain are hit with a fifth rise in interest rates in less than a
year, endangering the precious feelgood factor, and serving as a reminder that after an extraordinarily sunny economic decade, clouds are gathering on the horizon.
Gordon Brown has rightly boasted about an unprecedented 10 years of stable growth, low interest rates and low inflation. But there are questions about how much longer the good times in Britain can possibly last.
Property prices look perilously overvalued, households are saving a smaller proportion of their income than at any time since 1960, and at least some members of the bank's nine-member monetary policy committee look determined not to relent until a slowdown starts to bite.
Many analysts now expect interest rates of 6 per cent by the end of the year, with potentially devastating effects for overstretched borrowers.
"The old phrase, 'apres moi le deluge' is beginning to look more and more relevant," says Vince Cable, Treasury spokesman for the Liberal Democrats.
"Essentially, economic growth has been sustained by consumer spending, backed by huge personal borrowing. The economy is very unbalanced, and we have a very large stock of personal debt that is not sustainable in a climate of rising interest rates."
Hawks on the policy committee, led by Bank of England governor Mervyn King, argued at last month's meeting that GDP growth may have to be dragged to below its long-term average, to bring inflation down to the 2 per cent target set by Brown.
That's certainly not what Darling will be hoping for: the Treasury's current forecasts, published in the Budget, predict robust growth of 2.75 per cent to 3.25 per cent for this year.
The bank's rate-setters seem to have decided the risk of inflation is so great that they cannot allow the economy to grow that fast.
"They're not in wait-and-see mode," says Karen Ward, chief UK economist at HSBC. "Their attitude now is, we don't have time to be gradualist. But when you've got such heavily indebted households, a quarter percentage point has a lot of power."
Of course, Brown's shrewd decision to hand power over monetary policy to the Bank of England means Darling will not be faced with the job of announcing rate rises - or taking the blame - himself; but a shakier economic backdrop certainly won't make his job any easier.
And there are plenty of tough decisions ahead. Darling may have soothed the egos of his senior mandarins by reassuring them that, under his leadership, the Treasury will not simply return to its traditional role of saying "no" to other departments' extravagant spending requests. But that will certainly be part of their job.
In the autumn - probably October - Darling will announce the final details of a painfully tight government spending review. Most departments have already been told how much cash they will receive, and further details will trickle out over the coming weeks, with the new Department for Business Enterprise and Regulatory Reform first in line.
Public spending is due to expand by less than 2 per cent a year in real terms from 2008-2010 - compared to an average of 4.4 per cent since Brown took the brakes off in 1999. Unlike his predecessor, who was blessed with bumper tax revenues during the dotcom boom, Darling is unlikely to find spare cash he can distribute to favoured departments in later years, boosting their allocations.
"Darling's problem will be managing that, and having to deal with the flak. You've got some very tough constraints on some departments," says Ruth Lea, director of the right-leaning Centre for Policy Studies.
Not only will he have to face down calls for extra cash from colleagues keen to make a mark on their new departments, but Darling will have to finish the battle, started by Brown, with hundreds of thousands of public-sector workers, who are threatening mass strike action over below-inflation pay offers.
The leadership of the PCS union, which has already held two one-day strikes, is seeking an early meeting to air members' grievances.
"What we want to do is sit down with Darling and other new ministers, and try to get a negotiated outcome," says a spokesman.
"We want to say, you've got to start treating your own workforce with a bit of respect."
The PCS and Unison are threatening further mass strike action - and negotiating with them is likely to prove an early test of Darling's will.
Many Chancellors spend a large proportion of their time agonising over how to tweak the tax system. Darling will be spared that - because Brown used his last Budget to pre-announce tax changes including cuts in corporation tax and income tax, offset by rises elsewhere.
"Brown has really tied him in. His first Budget will be, "I'm standing up now, and delivering Mr Brown's last Budget,"' Lea says. "This is the problem with having a Prime Minister who's been Chancellor for 10 years, and has essentially run domestic policy. Mr Darling will be very, very hampered."
With the risk of an economic slowdown in prospect, Darling will also have to decide whether to stick with Brown's much-vaunted - and much-criticised - fiscal rules. There is a serious risk that he will bust the sustainable investment rule, meant to keep government debt below 40 per cent of GDP.
Economists say the figure is arbitrary, and forced Brown into financial shenanigans to keep borrowing off the government's balance sheet. However, dumping it might look too much like throwing prudence to the wind.
Brown's successor is well-known for possessing a "safe pair of hands". With rates on the rise, and little room for manoeuvre on either tax or spending, he will certainly need them.
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