Since recovering from recession in the early 1990s, the UK has benefited from a favourable world economy. Commodity prices have been low, and sterling strong. Globalisation, in particular China's entry into the international trading system, has pushed down manufactured goods prices, a sector the UK had all but abandoned in the 1980s.

The results for the economy were twofold. First, a positive shift in the terms of trade, as the sale of expensive financial services in exchange for cheap manufactures made Britons richer. Second, the steady fall in Chinese prices kept inflation down, and made economic management much simpler.

The final part of the story is the independence of the Bank of England in 1997, and a spectacular increase in public spending, starting in 2000. The result: a nice decade.

Most of those forces are now absent. China is starting to cause inflation as it sucks in commodities and its people increase their own consumption. Sterling has slumped. Capacity for further public spending is exhausted. In the next decade, growth will have to be earned through higher productivity, and inflation will be harder to control.

(...) compared with importing cheap Chinese goods, this kind of growth will involve hard work, to make British workers more productive.  (...) The economy may have to rebalance a little away from financial services. But nothing is likely to make the 2010s as pleasant for the economy as the nice decade.