We're determined to stay cheerful

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In Tokyo the yen is low And nothing is consumed, In Buenos Aires they're either paid off, or laid off, The average Yank is very frank That his economy is doomed, But mad dogs and Englishwomen shop in the winter gloom

No one can quite understand it. It has been an orthodoxy of the past four months that the good times are over, and that the skids are under us all. The world economy faces its worst slowdown in 10 years, worse even than 1998 when the rouble went belly-up, and South Korea went face-down. Now, from the Far East to Latin America, the dole queues are lengthening and the consumers have been drawing in their horns. Cities in the United States already report a surge in the numbers of the homeless and newly indigent turning up at emergency shelters. At home, readers of the Financial Times live in a state of perpetual nagging about the rapids that lie just around the next bend in the economic river. There's too much debt in the system; house prices are too high; share prices too over-valued; there's going to be a reckoning.

To which we Brits have responded just as Frankie Howerd did in Up Pompeii when confronted with the soothsayer Cassandra. She would cry "Woe! Woe! Thrice Woe!" and Lurcio would smile, nod and mutter "silly old fool!" under his breath. We also smile, and set about our Christmas shopping. So, despite confident predictions of a poor holiday season, it is becoming clear that sales this year will be at a record high. The great malls, such as Bluewater in Kent, are talking of turnovers increasing by nearly 15 per cent. Even an old high-street store such as John Lewis could announce year-on-year growth of more than four per cent in the first week of December. The exact opposite, remember, of what is supposed to be happening.

In circumstances like this there are two broad possibilities. Either the British people are living in a fool's paradise for some reason, or else they know or intuit something that the Cassandras have overlooked. One of the latter, Ed Crooks, economics editor of the FT, hinted at a psychological flaw when he characterised us in this way yesterday. "The British," he sniffed, "have been plunging themselves into debt and going shopping." The implication is clear - this is a pathology for which we will have to pay, just as we did in 1989-91, when we were punished with negative equity and middleclass bankruptcies.

If it's the former, what has made fools of us? Why should we "plunge" in this careless way? The subtle suggestion is that we have embarked upon something rather like a national course of retail therapy. Depressed by world events, maddened by Railtrack and London Transport, made fatalistic by the prospect of ending our days on a trolley in a chaotic A&E somewhere, we have simply decided to cheer ourselves up by splashing out - no matter what the consequences. Spend now, for tomorrow we die.

Personally, I don't believe a word of it. It simply isn't what I see around me - the shoppers in Brent Cross don't seem to have mad eyes or robotic limbs. There are plenty of reasons for British consumers to be confident at the moment, not the least of which is that they have heard all this Cassandra stuff before. They can remember the crash of 1998 that didn't happen, the great floods of 2000 - the waters of which never came near 99 per cent of them - the constant requirement for Gordon Brown to raise income taxes, which he has never had to do. Outside London, relatively few people use the train, the price of new cars has fallen and so, recently, have fuel costs.

And the country's finances are in pretty good nick. The international economic agencies have pronounced the British economy as being quite sound. Average earnings have been rising at four per cent a year (though that figure is falling now), headline inflation is below one per cent and interest rates are at their lowest for half a century. Despite two months of rising joblessness, unemployment is still 50,000 below what it was at the same time last year. And though some sectors ( particularly those related to tourism or air travel) are shedding staff, there are still skill shortages in the private sector and well-publicised vacancies in the public sector. In fact, a small recession would do wonders for teacher and nurse recruitment.

So debt is rising! So what? Household debt may be at an all-time high as a ratio to income, but servicing that debt has not - in living memory - been cheaper. Nor is there an immediate prospect of interest rates going up. With shares languishing (though not disastrously), the most rational thing to do if you have money, is to spend it - thus keeping some other bugger in a job - or to buy a house with it.

There's something else too; something bigger. Three months after New York we're still here. The IRA has begun to decommission its weapons, there has been no anthrax attack on Robin Cook, and we (with a little bit of help from the Americans) have won the war in Afghanistan quickly, when it had been confidently predicted that we would lose it slowly. Far from being damaged, our faith in our ability to deal with the world around us may have been enhanced.

Take this intriguing fact. After 11 September the airlines reported substantial drops in passenger numbers, presumably because of people's fear of flying. But not all airlines. Companies such as easyJet, the Britishbased budget operator, have seen big increases instead. But why? Are budget passengers braver than full-fare ones? Or do we believe that terrorists only travel Club Class? Or could it be that our love of a bargain far outweighs our fears of being killed by mad mullahs, or even of being bankrupted by a runaway recession? Shop on.