There used to be a postcard on sale in Britain which depicted a gathering of the Anarchist Party. "How can we destroy their schools, their hospitals, their public transport system?" asks one. The other replies: "Vote Tory."

Now, according to most analysts, one can add the British economy to the list of things sent into decline by the Conservatives.

In the months leading up to the May 1997 election, the then Chancellor of the Exchequer, Mr Kenneth Clarke, could see that the economy was overheating. He should have raised taxes and interest rates, but such a move would not have made him or his colleagues popular on the campaign trail.

By the time Labour's Mr Gordon Brown was installed at number 11 Downing Street, the chance to engineer a "soft landing" a smooth slowing of the economy rather than boom followed by bust had passed. He raised interest rates several times, and made the Bank of England independent, but it was too late. Now, growth is screeching to a halt, and everyone expects a sharp drop in the value of sterling. The country could even be in recession by next year.

"We do expect quite a slowdown in the British economy," Mr Jurgen Phister, chief economist at Commerzbank in Frankfurt, told The Irish Times. "They have a highly overvalued currency and a significantly tight monetary policy. I think we could expect growth down to 2 per cent in 1998 and even less, maybe 1.5 per cent, in 1999."

The two main elements making up Britain's economy are services and manufacturing industry. These sectors are now completely out of sync with one another, and this has tied the hands of the members of the Bank of England's Monetary Policy Committee.

"Manufacturing is tantamount to being in recession, but you have a services sector that is still growing at between 3 and 4 per cent," Mr Jeremy Hawkins, Bank of America's chief economist in Europe, told The Irish Times. "That wouldn't be so bad if services weren't such an important proportion of GDP as they are somewhere between 75 and 80 per cent."

Since the beginning of the current wave of building society and mutual insurance company flotations around two years ago, British consumers have received about £40 billion in free shares. Most, it seems, took their windfall and went shopping. This meant a huge boost to the retail and services sector, but pushed up inflation.

The Bank of England striving to get inflation, now at around 3.2 per cent, down to its target of 2.5 per cent ordered a series of interest rate hikes.

The higher rates in turn made sterling attractive on the foreign exchange markets, pushing up the value of the currency by almost a third. This meant that exports mainly from the manufacturing sector became more expensive.

"Not only was all this happening," says Mr Eoin Fahy, chief economist at Ulster Bank, "but wages in the UK are rising much too quickly and making Britain uncompetitive.

"We're now at a situation that is looking quite ugly. The payouts from the building societies have largely stopped, wage pressures seem unlikely to go any higher because the Bank of England is clamping down so strongly by putting up interest rates, the pound is as strong as ever and there's also a very large trade and current account deficit building up because they're sucking in exports at a fierce rate," he adds.

The options open to the Bank of England are few. Wages, driven by the services sector, are already rising at almost 6 per cent; lowering interest rates would indirectly push this figure, and inflation, higher. Raising rates again would dampen consumer spending, borrowing and inflation, but would send sterling even higher and drive some manufacturers to the wall. The bank's Monetary Policy Committee decided yesterday to leave rates unchanged.

Ironically, what the Labour government really needs to smooth the economic bumps is for more people to lose their jobs. "There will have to be rising unemployment over the next 12 months," says Mr Oliver Mangan, chief economist at AIB Capital Markets.

He and other economists point out that unemployment in Britain, at below 6.5 per cent, is much lower than the European Union average of around 11 per cent.

"You could probably get away with another percentage point or so on the unemployment rate going into the next election," says Mr Hawkins

Some are now betting that the election will come a full year early, in May 2001. This would allow Mr Blair to treat his reelection as a thumbs-up for EMU.

From then on, of course, the Bank of England would have no control over monetary policy whatsoever.