Uncomfortable line for Labour

Yet what the IMF said has significant implications for the way Government policy unfolds in the next couple of years. It forecast growth this year and next of just 1.75%, which is well below the Treasury's prediction but closer to the Bank of England's more gloomy recent estimates.

It coupled this with a warning about externally generated inflation and the need to maintain high interest rates long enough to slow the economy significantly so that it will not take root within the UK. Third, and most significantly for the Government, it urged that the Treasury "should not waver" from its commitment in the last Budget to tighten fiscal policy in 2009 and 2010.

If the Government takes that advice it will be in even deeper trouble with the electorate. The IMF is saying in essence that although the economy will be slowing, the Government has got to put up taxes and/or cut spending next year and the one after, in spite of what by then will be an imminent general election.

Labour MPs might reasonably conclude such actions would amount to electoral suicide. Others might think that they are no more than the logical outcome of Brown's profligacy as Chancellor when, while preaching prudence, he in fact put in place increases in Government spending so extreme that they have severely overburdened the economy.

Either way, if it is the economy that determines how people vote in elections, as Bill Clinton famously decreed, the future as predicted by the IMF holds little comfort for Labour.

Be wary of bank shares' bounce

Leading banking analyst Huw van Steenis of Morgan Stanley put together some bank holiday reading which was almost as dismal as the weather.

Bank shares have fallen a long way since last summer, of course, but in recent weeks in many cases they have come off the bottom. The issue for those tempted to be buyers is whether it is possible now to see a glimmer of light through the gloom, in which case they may represent reasonable medium-term value. Alternatively, the recent bounce may be merely a bear market rally, with more sharp falls to come.

Whether the credit crisis is past the worst is not really the point. Rather, it is that going forward banks are going to be more risk-averse. They will be required to, or want to, hold more capital, which means they will be significantly less leveraged. The combination of less risk and less leverage means less opportunity for profit (and horrendous losses) so they will generate a lower return on equity.

That is the price of conservatism and running the business as bankers should run businesses - prudently. However, if bankers prove to be genuine in their conversion to sobriety and probity it will also be reflected in their shares. They too will become safe, but boring.

That is for the future, but van Steenis also highlights a more pressing near-term issue arising from the uncertainty surrounding the rights issues from Royal Bank of Scotland and Bradford & Bingley which are out in the market but not yet assured of success.

Neither did themselves any favours, B&B by denying that it planned a capital raising and therefore delivering it as a nasty surprise a few weeks later, RBS because it has throughout this exercise shown a remarkable lack of contrition and openness.

RBS shareholders are being asked for £11 billion, the insurance division including Churchill and Direct Line is being sold, with offers expected this week, and might fetch £8 billion, but even now analysts don't feel they have a full picture of what is going on. They say the shape of the balance sheet and structure of the group as ABN Amro is integrated are still not really clear.

These banks will get their money anyway, of course, even if shareholders refuse to put up more cash because the issues are underwritten. However, van Steenis's point is that if they are made to struggle because of the nervous markets, it will really hold back the others from trying because they will not want to expose themselves to the risk of failure. This could slow down and harm the overall replenishment of capital in the banking system - and that is another reason to steer clear of bank shares.