ANYBODY looking for a good example of Britain’s two-tier economy need look no further than the Bank of England’s latest inflation report.

House prices, the Bank’s big worry, have risen by between 25% and 30% in the past 12 months. They may be due for a crash, or they may carry on rising strongly for some time yet. Mervyn King, the deputy governor, is honest enough to admit that the performance of the housing market has defeated the Bank’s finest forecasting minds.

Commercial property prices, in contrast, have increased by only 2% in the past year, and have been weak for the past couple of years, reflecting, the Bank says, “the relative weakness of the corporate sector”. If I were a commercial property developer, I might be nervous about some of the extra space coming on to the market, particularly in London.

The contrast between consumer boom and corporate gloom is striking, and not just in property. Retail sales last month were 7.1% up on a year earlier — 4% on a like-for-like basis — according to the British Retail Consortium, suggesting that shoppers are gearing themselves up for a pretty good Christmas.

Spending by companies, in contrast, is down sharply. The latest official investment figures show capital spending down by more than 10% on a year ago, and surveys suggest that no early recovery is in sight. A drop of this size in investment is by no means unusual. What is unusual, if not unique, is that a recessionary slide in investment is occurring at a time when the economy as a whole is growing, as King also pointed out, in line with its long-term trend.

Why is investment so weak? Every quarter, before the inflation report, the Bank’s 12 agents around the country talk to about 2,000 businesses. What they found on investment this time was illuminating. “The climate for investment has deteriorated since the previous agents’ summary,” their report concluded. “Cash conservation has increasingly been prioritised, after falls in world equity markets and low profitability. Weakening confidence resulting from geopolitical uncertainty also led many firms to postpone investment. In some cases funds earmarked for investment projects were diverted to top up company pension schemes.”

Some of the discrepancy between strong consumer spending and weak corporate spending can be explained by the fact that firms are more “globalised” than individuals. Businessmen and women, certainly in larger companies, tend to read the same magazines and be subject to similar influences. Confidence is weak the world over. So is investment, as my charts show.

Consumers, in contrast, are much more national in their attitudes. The contrasts in the consumer mood, even within Europe, are considerable. Compared with their counterparts in Germany or France, British consumers appear ridiculously cheerful.

There are other indicators of weak business spending. I make no apologies for using this newspaper’s Appointments section as an indicator of corporate health. At 10 pages this weekend, not all of them devoted to private-sector jobs, it remains a pale shadow of its former self. At its peak, it ran to 40 pages.

Private-sector employment now appears to be falling. Figures last week showed overall employment down 36,000 in the July-September quarter, with full-time jobs down by 72,000. The government’s broadest measure of unemployment is rising. Only the public sector is recruiting aggressively.

This, indeed, is where Britain’s businesses feel particularly hard done by. Last week the CBI struck a chord, and some Treasury nerves, by pointing out that business has been the subject of a cumulative £47 billion of extra taxes since Labour took office in 1997. Worse, this is coming at a time when firms are suffering, at present, a £30 billion shortfall in profits compared with what the position would have been had profits risen in line with gross domestic product (GDP). You might say that this is just a cyclical thing, but it goes a bit beyond that.

Both business and the stock market are worried that when profits recover they will do so only moderately and will be at a lower level than before. The government, meanwhile, has gained a lot of brownie points from its record on economic stability, but the feeling is that it has now used up most of that credit.

This week the Engineering Employers’ Federation will add its voice to the protests. saying that business taxation will go up by £6 billion next year alone and that the UK’s position as a low-cost, flexible business environment is being dangerously eroded. This is borne out by another finding from the Bank’s agents, which was that where firms are investing, it is often to shift capacity to cheaper locations abroad.