George Osborne has wisely pulled back from a fiscal cliff and a welfare crisis next year but the austerity measures planned until the end of the decade will nevertheless be draconian.

Citigroup and RBS both estimate that net retrenchment will be 3.5pc of GDP over the coming three years, roughly what we have already endured since theLehman crisis. Much of it is from higher taxes – normally the reflex of Labour or the French socialists.

This is in stark contrast to the eurozone, where policy is finally on a neutral setting after the bloodbath of 2011-2013. The US is even going into a period of net fiscal stimulus as state and local governments launch a blitz of spending.

Unfortunately, Britain needs its bitter medicine. Cyclically-adjusted net borrowing is 3.4pc of GDP this year, the highest in the Western world. This is courting fate at such a late stage of the economic cycle, leaving no safety margin against an external shock or a global recession.

The current account deficit is the worst in the OECD club at 5.1pc of GDP. The country is systematically borrowing from global investors to fund a lifestyle beyond its means. The Bank of England warned in its Stability Report that the deficit leaves the UK vulnerable to a sudden cut-off at any time, if the mood changes.

“We’re selling off assets to finance excessive spending,” said Philip Rush from Nomura. “Foreigners may be comfortable to do this now but what happens if the economy rolls over or there is a vote for Brexit?”

David Fuller's view

Here is a PDF of AE-P's column.

Might this column be a little too pessimistic?

I would describe the UK’s economic condition as encouragingly on the right track but with no cushion in the event of a setback.  The UK economy has generally been leading in the modest recovery among developed countries to date.  That is a positive achievement and the debt overhang is the legacy of Gordon Brown’s reckless borrowing, when as the previous prime minister, he ran the UK economy into the ground. 

Most successful chancellors of the exchequer have benefited from an element of luck.  All they can do is put sensible pro-growth policies in place and hope the economy does not fall off a cliff – a risk that is largely beyond their control. 

George Osborne has done this, and he is clearly one of the best chancellors that I have seen.  Moreover, the Conservative Party’s one nation government attitude is both appropriate and farsighted.  It will benefit from a further tailwind of low global interest rates, stimulatively low commodity prices and minimal headline inflation.  

So there is an element of luck for the UK economy at this time, although it does not yet include a global economy which is clearly recovering.  Yes, there will inevitably be some Grexit uncertainty within the next two years but I will not lose much sleep over this.  I expect the UK electorate to make the right decision based on the additional information we will have before that important vote.