As NY sneezes, we catch cold

Lehman Brothers employs more than 4,000 people in its London office, most of whom will now be unemployed. Thousands more work for Merrill Lynch. However, Barclays Bank has declined to take part in a rescue bid, even at a knockdown price, which means that one big British player will not now be at risk from Lehman Brothers' toxic exposure to the US property markets.

There was little likelihood that there would be any kind of federal bailout for Lehman Brothers to preserve it from the consequences of its own misjudgments. Nonetheless, the collapse in the confidence of the financial sector is dire for the City. This may be the final upshot of the credit crunch but it will also aggravate it.

A crisis in the financial sector may have a limited effect on the real economy. Trouble is, the wider economy shows every signs of heading for recession, according to the CBI, which warns of two quarters of shrinkage ahead. There is, in truth, little the Government can do but for the Prime Minister, that hardly helps.

Lib Dem dilemma

THE Liberal Democrats have begun their annual conference in better spirits than they did a year ago. They have a new leader, Nick Clegg, and should stand to gain from the Government's woes, with many observers predicting a hung parliament after the next election. And yet this conference will pose some hard questions for them.

The most obvious flashpoint is over tax and spending. Mr Clegg has come out in favour of deep tax and public-spending cuts. This is one of the Lib-Dems' vital functions in British politics: taking bold positions on issues where the two big parties are wary. Nevertheless, the party's Left wing will regard it as anathema and comments by Simon Hughes suggest there is tension in the top team on this approach.

But the Lib Dems also face a more troubling electoral trend. From the mid-1990s until the 2005 election, they benefited from tactical voting against the Tories. With the Conservatives resurgent, all the signs are that that period is over — and that it will hurt the Lib-Dems. Their showing in the Crewe and Nantwich by-election in May was dire and their performance in the Glasgow East by-election and the London mayoral race was poor. They now need urgently to set out a credible strategy for challenging the Conservatives in the South — and hardening their gains in the northern cities.

Part of their offer to middle England must be on tax and spending. Less comfortable still for the Left, the party's most realistic prospect of influence now would be working with any future Conservative government. How effectively Mr Clegg can impress these points on the party faithful this week will be the first real test of his leadership skills.

Bright fashion

THIS may be the last year that London Fashion Week actually lasts that long, now that New York Fashion Week threatens to cut into the time allotted for the London shows. But it is, nonetheless, a glorious affair — a showcase for everything London fashion does best. The original, street-wise and quirky approach of British designers is on show on home ground — a breath of air for the industry, a boost to the entire economy and a treat for London's fashion-savvy women.