The spot shows where the Government hopes to get to by the end of the year. That target no longer seems achievable.So what will happen? Higher taxes? A clamp on public spending? Or might the Treasury, under new management, just carry on borrowing? My guess is that it will. Overall debt as a percentage of GDP (right-hand graph) is still well below the level inherited in 1997. In the middle graph, you can see the deficit on the current budget, the dotted line being this fiscal year and the solid one last year. I do not have a coherent argument to support this, but I find myself wondering if the coming peak could be rather higher still - say 6 per cent.This might happen for several reasons.

One possibility is that the US slowdown expected next year isn't too severe. Another is that growth in China and India races on despite efforts to slow the pace.But the big reason for thinking rates might have to go up quite a bit more is that even 5.25 per cent will not be enough to check either UK growth or the housing market.Growth is still being pushed up by public spending. Each year, the Chancellor ends up borrowing more than the number he first thought of. Can we rely on this downward pressure to continue?Well, yes - up to a point. But the particular impact of a large increase in the workforce has been a one-off. Some further immigration will come from Romania and Bulgaria, but as other EU job markets gradually open up, it may be that at least some of the new migrants will go elsewhere. Other forces helping to restrain inflation, such as the fallback in oil prices, may reverse themselves.

So the Bank would be wise to lean a bit harder against inflation.Is 5 per cent the top level for rates? A Reuters poll of City economists published on Friday showed that around one in four expect another rise to 5.25 per cent in the early part of next year.Suppose, though, that is not the peak. But internationally, the act of offshoring production, or simply the threat of it, is keeping down the price of things as diverse as electronic equipment and online computer support. Of these forces, the main one is the impact of China and India (and to some extent Eastern Europe) on the price of traded goods and, to a lesser extent, traded services.The UK has experienced one example of the Eastern Europe effect: immigration has held back wage inflation. So if house prices are likely to lead to financial instability, as falling prices did in the early 1990s, it has to be concerned.

It must try to avoid a housing bubble.In any case, other factors are at play in rate-setting decisions. These include the extent to which the prices of current goods and services are held down by external forces, which might fade, and not by domestic ones. Other major shake-ups have included the second post being scrapped and the introduction of a new way of charging for mail.But with the postal market opening up to full competition earlier this year, the Royal Mail is continuing to cut costs as it strives to ensure it is able to compete when rivals come into the market.The service is also bogged down with a £5.6bn pension deficit, and the Communication Workers Union is unhappy with proposals by Mr Leighton to offer shares in the company to staff.. Nevertheless, the Bank has an overriding responsibility for the stability of the country's financial system - a role that long predates the founding of the MPC. This has not happened yet, leaving the many economists who warned about the danger feeling a bit uncomfortable But that does not mean it won't happen in the future.

(My own view has been that a plateau is more likely than a slump.)The point here, which is always worth repeating, is that the Bank does not officially have any policy on house prices; interest rates are set with regard to future inflation of goods and services. There was a downward blip in retail sales in September, but most people don't seem to think that says anything alarming about consumption in general.But the buoyancy in the property market does point to the perils ahead. If wages go up by 4 to 5 per cent a year and house prices by 8 to 10 per cent, housing becomes 4 to 5 per cent less affordable every year. Already the ratio between prices and average income is the highest it has ever been. The further that gap widens, the greater the danger of a sudden fall. Employment has continued to rise, though thanks to the increased size of the workforce - from immigration and older people returning to work - unemployment has risen too. The housing market has recovered, with prices now up by an average of around 8 per cent year-on-year, which should help sustain consumer demand.