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Consumer confidence is a double-edged sword. On the one hand, it is self-perpetualing and reflects the feel-good factor of consumers. Retail sales rose by 0.6 per cent in September. On the other, the associated borrowing could be burrowing under these foundations.
Or so some commentators would have us believe when they point out parallels with the last major recession.
The end of the 1980s brought a lot of borrowing and a lot of fun. Then interest rates went up suddenly, causing negative equity and arrears.
Economists and politicians say it can't be allowed to happen again, and this could have been in the back of Mervyn King's mind when he succeeded Sir Eddie George as governor of the Bank of England. In a speech to the Midlands Development Agency in October, he warned that the Monetary Policy Committee's (MPC) strategy--stimulating domestic demand to make up for a lack of external demand in the face of a strong exchange rate--carried the risk of a "sharp correction to the level of consumer spending at some point in the future".
King said the risk is increased by the continued strength of the housing market and the borrowing that comes with that. His train of thought was echoed in the last week of October, when …