Adam Wilson, owner of the Sea Breeze fishmongers in Nantwich, is feeling the chill wind of tougher economic times. He and his girlfriend Sarah Talbot, 34, who works in a dry cleaners, have shelved plans to move up the housing ladder and are cutting back on spending.

“All the costs for the business are going up, including business rates, energy bills, staff wages and the cost of stock,” said Wilson, 32. “And when you go to the supermarket, you end up paying more for less and have to make do without those little extravagances. When I fill the car up, the price goes up at the pump.

“I don’t go out as much as I used to. We would go out for a meal once or twice a week but now it’s down to once a month. I’ve not been on holiday all year. People are fed up.”

As Labour and the Conservatives prepare to do battle in the Crewe and Nantwich by-election on Thursday, Wilson’s message is clear. “No one voted for Gordon Brown to be prime minister. Brown said there would be no return to boom and bust but people are certainly not feeling prosperous. I have no confidence in him.”

For Wilson, and many people like him, the governor of the Bank of England’s assessment last week that the “nice” decade is over for Britain was only too apt. Mervyn King said he was not predicting recession but there was a risk of it. People had to prepare for “growth to slow sharply” and a “squeeze on real incomes”, he said. It will be a shock.

Since the early 1990s, inflation has remained unusually low. For more than 10 years the only way for house prices was up, and the only way for unemployment was down. Levels of employment had risen to record levels, making Britain a magnet for migrant workers.

Now, however, the party is over. Even on the government’s official measure inflation has gone up to 3% and is set to rise to at least 3.7% in the coming months, according to the Bank. The retail prices index shows inflation is already 4.2% and it will be pushed higher by soaring petrol and food prices.

Salaries, in contrast, are rising by less than 4%. Unions are growing restless, and some workers are contemplating strikes.

The squeeze is hitting people such as Anthony Agrippa, a 36-year-old manager with an automotive glass company. He and his wife wife Nicky live with their two children in north Wales and commute daily to Liverpool for work.

“We had to increase our overdraft with the bank to cover the price rises because towards the end of the month we were counting the pennies to be able to fill the car with fuel and go to work,” he said.

“The majority of the increased spending is on fuel. With petrol prices going through the roof, the cost really creeps up. We’re spending about £100 extra a month on fuel. The weekly shop is also coming out more expensive, by about £80 a month. The increases are 50p here, 50p there, and you don’t notice that until you get to the till.”

There is worse to come. On Friday world oil prices hit a new record of just under $128 a barrel, double the level a year ago. It is only a matter of time before the rise feeds through to the forecourts.

As such increases hit home, the low-paid are struggling to cope. The finacial website Moneysupermarket.com says the number of people taking out “payday” loans to tide them over until the next salary cheque has soared to 500,000 over the past nine months.

House prices have dropped by 4%-5% since the autumn (after rising 200% in the past decade). And last week brought the first tentative signs that Britain’s jobless total is starting to rise. Unemployment on the government’s preferred measure rose by 14,000 in the first quarter, though the number of people in jobs also rose. The “claimant count” jobless total has now risen for three months in a row.

In the City, the good times have come to an abrupt stop, with Morgan Stanley cutting 250 jobs, UBS 900 and Merrill Lynch 350 among a steady stream of redundancies. Britain’s housebuilders, struggling to sell anything in a depressed market, are laying off hundreds of workers.

In the 1970s the combination of soaring inflation and recession was christened “stagflation”. Nobody is predicting a return to the 27% inflation and mass unemployment ushered in by that turbulent era. But the economic mood has turned distinctly gloomy, as the country faces its toughest test for a decade and a half.

Amid the uncertainty, the prime minister tried to remain positive last week, but sounded uncomfortably like the weatherman Michael Fish, who said just before the great storm of 1987 struck that it would get “rather windy”. After 10 years as chancellor, Brown boasted, he was the man to lead Britain through the economic crisis. He was “getting on with the job of building for the long term and taking the sometimes unpopular decisions which are necessary”.

He added: “I am determined not to be diverted.” Coming from a man who had just done an extraordinary U-turn in the row over the scrapping of the 10p tax rate, it did not inspire confidence.

AN indication of what may be in store is given by Vicki Brown, a 40-year-old school secretary who lives in Tyneside with her husband Colin, 38, and their two young children.

“My husband was made redundant at Christmas because the IT industry he works in is getting smaller where we live,” she said. “He has moved away during the week, coming home for weekends. He was looking for work here but there are just no jobs going; it’s all further down south, so he had to move to Chester and take a demotion from being a manager back to being a business analyst. The costs have gone up because he’s away and has to pay for living costs and food separately, and everything’s now costing more as well. We have to run two cars, which with the petrol prices at the moment is extortionate.

“Money just doesn’t go as far. I can’t afford to take the children places as much as I used to. We’re trying to instil into the children now that money doesn’t grow on trees.”

While some families have always struggled to cope with bills, others are experiencing it for the first time in many years. The end of the easy-money era means that rising prices and the relatively modest losses caused by Labour’s scrapping of the 10p tax rate are keenly felt.

Writing in The Sunday Times last week, Stephen Byers, the ultra-Blairite former cabinet minister, called on ministers to ditch a planned solution to the 10p tax crisis based around Brown’s complicated tax credits system.

Instead he suggested the 5.3m losers could be compensated through a much simpler method: raising the basic-rate income tax threshold. On Tuesday the chancellor Alistair Darling announced in his mini-budget he would do just that.

The measure surprised Labour MPs. Brown had previously suggested that raising the tax threshold would cost too much and might fail to reach all the affected people. How the government arrived at last week’s solution is still a matter of fierce debate, with No 10 and the Treasury vying to claim the credit. While sources close to Brown suggest the policy came from No 10, sources close to the chancellor say it took time to persuade Brown that fresh thinking was required.

Although Darling gave no clue how he would fund the £2.7 billion giveaway, the mini-budget satisfied most of the government’s critics on the Labour backbenches. But it raised questions over whether, in its desperation to stay in power, Labour was prepared to sacrifice any pretence of keeping a grip on the public finances.

Brown, a savage critic of the Tories for their “unfunded” tax promises before previous general elections, has now presided over his own unfunded tax cut; and it has happened only weeks after the chancellor insisted there was no spare cash in the Treasury coffers.

The City was scathing about the U-turn and about Brown’s ability to steer the economy through the downturn. “At least Mervyn King was being honest and realistic but in Downing Street they appear to be living in some kind of fantasy land,” said Danny Gabay, an economist with Fathom Consulting. “Is it £2.7 billion ahead of every by-election?” asked Michael Saunders, an economist with Citi, a large investment bank. This was an occasion, though, when Brown and Darling’s priority was not to satisfy the City but to keep members of their own party onside.

John McFall, Labour chairman of the Commons Treasury committee that had been critical over the 10p debacle, rallied to his party leader. “There will be troubled times ahead,” he said. “There will not be a recession but growth will slow. Brown is right person to lead us through them.”

There is, however, concern among some backbenchers that the detail of Tuesday’s announcement did little to improve public sentiment. They fear voters have already been left with the lasting impression of a weak prime minister who is willing to sacrifice principle for political expediency.

Ian Gibson, the left-wing MP for Norwich North, said: “People are asking how can anybody who has done so well over 10 years make such a terrible mess of things. The issue is no longer about compensating the remaining low-paid workers who lost out — although that is important — it is about the lack of confidence, the feeling that we don’t know what we are doing.”

Asked if Brown remained the best person to lead the country through the slowdown, Gibson replied enigmatically: “I know no one else. You can’t get rid of somebody unless a natural successor has been identified.”

All eyes will be on the by-election, where Labour is odds-on to lose despite defending a 7,078 majority. The Conservatives have been seeking to turn the ballot into a referendum on Brown’s economic competence.

Philip Hammond, shadow Treasury chief secretary, insisted voters remained angry about the economy. “People I have spoken to were unimpressed by Mervyn King’s pronouncements on inflation,” he said. “They could have told him months ago that prices were soaring. Brown’s strategy has been to focus attention on the world economic situation. However, the truth is that he has wasted the proceeds of growth during the good years and our economy is ill-prepared for future storms.”

If Labour does lose in Crewe this week, long-term economic challenges will be the last thing on Brown’s mind. Short-term political survival might the only thing that matters.

Vince Cable, the Liberal Democrat Treasury spokesman, said: “Brown’s position is very fragile. What he has done is bought some short-term breathing space with his Labour backbenchers but at a huge cost to his reputation for economic competence. He has thrown £2.7 billion at the problem without identifying where the money will come from.”

Even if Labour holds on to Crewe, the predicted housing slump could become Brown’s next political headache. Cable said: “The bubble in the housing market is only just starting to burst. He has no strategy for dealing with this. He is just hoping this won’t happen.”

In an embarrassing gaffe last week, the housing minister Caroline Flint revealed that the government privately thought the housing market was in more trouble than it had publicly admitted.

Flint was photographed outside No 10 with her cabinet briefing notes clearly visible, and they declared that house prices would fall “at best 5%-10% year on year”. The note added: “We can’t know how bad it will get.”

IN the early 1990s, during Britain’s last recession, house prices fell for five years (in real terms, after taking inflation into account) and unemployment almost doubled as the boom of the 1980s came to a shuddering halt.

So far the present slowdown is just that — a slowing of growth, rather than an actual recession. The Bank of England still expects the economy to grow, though at a feeble level, rather than to contract. The same is true in the US, even though the housing market there is in steep decline.

But the bank finds itself caught between two different forces. On one side is rising inflation, which it might normally counter by raising interest rates; on the other is a slowing economy, which it might normally try to revive by lowering rates. Navigating between the two will not be easy. One way or the other, some people will suffer.

The return of unemployment, for example, is already a reality for a few even before it has shown up decisively in the official figures. Until recently, Stephanie Parker counted herself among the lucky ones, living in a fashionable west London neighbourhood and earning a six-figure salary as one of the directors of a retail chain. She bought her four-storey Victorian town house 10 years ago, and her nine-year-old son attends a local private school.

Last June, Parker, 44, was made redundant. “It was a huge shock,” says Parker ). “Obviously the retail sector is the first to suffer in a downturn, but I didn’t see my redundancy coming.”

She used her severance package to pay off the remaining mortgage on her home, but is still concerned that the family might have to sell up to make ends meet.

“My husband’s job in publishing is not as well-paid as mine was, and far from secure,” she says. “If he were to lose his job, we would be in real trouble. It’s keeping me awake at night. I had thought I would walk into another job. That has not been the case. Everyone is cutting back, this is not a time for hiring.”

The end of the nice decade need not mean all will suddenly turn nasty. But for many people the free-spending ways of the early Noughties are unlikely to return any time soon.

Additional reporting: Brendan Montague and Anna Mikhailova

Fears over economy propel Tories to 20-point poll lead

The latest YouGov poll for The Sunday Times puts the Tories in a 20-point lead, up from 16 points a month ago. Fears about the economy appear to be behind the poor showing for Labour and Gordon Brown ahead of this week’s key by-election in Crewe & Nantwich.

Some 60% of those surveyed expected house prices in their area to fall and 59% expected either no growth or a recession. By significant majorities people say they are eating out and buying clothes less and checking prices in the supermarkets more often. But only a small minority, 16%, are more worried about losing their jobs.

One crumb of comfort for Brown is that 53% say international events are mainly to blame for the current difficulties, although 42% put the blame mainly on the government. Two-thirds, 65%, say Brown is at least in part to blame for the country’s difficulties.

Last week’s U-turn on tax has not gone down well with voters. Just 23% think the £2.7 billion giveaway was the product of a government strong enough to admit its errors. While 36% say the tax move was sensible and necessary, 47% say it was a cynical ploy ahead of the by-election.

The Tories now have a two to one lead on the question of economic competence. Only 17% think Alistair Darling is up to the job of chancellor.

Previously, voters had regarded Brown as strong and “good in a crisis” compared with David Cameron, while the Tory leader won on charisma. Now Brown has lost that advantage and 59% of voters say he should step down before the next election.

By three to one, 69% to 21%, they say he is not up to the job of being prime minister. Only 8% think he can secure a Labour victory at the next election.

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