Stock market crash and predictions of recession in the morning, followed by a bounce back and speculation about cuts in mortgage rates in the afternoon. It has all been very dramatic, with Gordon Brown and Alistair Darling facing doom-and-gloom economic headlines and widespread criticism of the Northern Rock rescue plan. But how will it all play politically?

Comparisons with Black Wednesday in September 1992 are too simple. It has never just been “the economy, stupid”. Governing parties can win when the economy is doing badly, as in 1992, and lose when growth is strong, as in 1997.

What matters is not just the state of the economy but which party is seen as best able to manage the economy. The sharp fall in share prices in October 1987 did not dent Tory support, which rose the next month. Later, before the 1992 election, the Tories stayed ahead of Labour by a margin of several points in Ipsos MORI polls as the best party to manage the economy, despite sharply rising unemployment. At a time of worry, voters still preferred the Tories over the untried Neil Kinnock team. And it took five years of hard slog by Mr Brown for Labour to be regarded as safe on the economy.

Black Wednesday – and sterling’s forced exit from the European currency links – had a double-edged impact. Economically, after inflation had been cut in 1991-92, it opened the door for the sustained growth that followed. Politically, the humiliating reversal of policy shattered the Tories’ reputation for economic competence.

But, in polling terms, the impact came in stages. The party’s poll rating fell by a few points in the immediate aftermath of Black Wednesday. But the big decline – to below 30 per cent and often well below – came later in the spring and early summer of 1993 after taxes were raised sharply.

The position now is complicated. In September, when the Northern Rock affair first appeared, a big majority of voters favoured the Brown-Darling team over David Cameron and George Osborne as best able to handle any economic problems. But the position has now changed substantially. Labour and the Tories are now only a few points apart as “the party of sound economic management”, according to this month’s Populus poll. This is as much to do with political as specifically economic causes.

The key is how far the market turmoil, and any downturn in the US, affects jobs and incomes in Britain. Any sustained drop in share and house prices would affect voters’ sense of wellbeing and optimism. As in 1993, that could be the turning point.

At present, the Government is trying to internationalise the argument, saying that current problems primarily originate overseas, especially in the US, and that domestic conditions are fine. The Tories and Lib Dems are trying to pin any difficulties on domestic errors by the Government, notably the rise in public borrowing during good times. In reality, there is something in both points. But that is scant comfort for Labour as its fiscal room for manoeuvre is much less than in the 2000 slowdown. Mr Brown and Mr Darling are getting boxed in just when Labour’s hard-won reputation for competence is looking battered.

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