The numbers are in, and they are bleak. According to the Office for National Statistics, the UK economy contracted by 0.3% in the last quarter, a figure that would be alarming at any time but is made all the more worrying by the deepening conflict in the Middle East.
The Iran war, a misadventure from the start, has sent shockwaves through global markets. Oil prices have surged past $120 a barrel, inflation is now running at 7.5%, and the Bank of England is caught between the devil of rising prices and the deep blue sea of a contracting economy.
The Treasury, meanwhile, is quietly preparing for the worst. Sources inside the department tell me that recession scenarios are being modelled, and the language has shifted from 'if' to 'when'. This is classic stagflation territory, and the parallels with the 1970s are becoming harder to ignore.
Gilt yields are spiking as investors demand a premium for holding UK debt, and the pound is taking a pounding. Capital flight is accelerating, with pension funds and foreign investors alike pulling money out of London. The fiscal headroom that Chancellor Hunt had built up is evaporating fast.
If we slide into recession, tax revenues will collapse and borrowing will balloon. The era of easy money is well and truly over. The market is a harsh mistress, and right now she is not in a forgiving mood.
Scepticism about government intervention is justified. We cannot spend our way out of this, not without trashing the currency further. The focus must be on restoring credibility, slashing red tape, and letting the invisible hand do its work.
But will the politicians have the stomach for it? Don't hold your breath.
