NEW data published on Friday shows that the UK budget is deteriorating fast. Somehow this never made it to the front pages of most of the Unionist press. In fact, the deficit for June – what the Chancellor has to borrow to cover the shortfall in tax income – rocketed by 43 per cent compared with the same month last year. The reason? Rising inflation has pushed up the Treasury’s interest payments on index-linked bonds. Inflation is the ticking time bomb underneath the Tory government.

Chancellor Philip Hammond, who made his pile in construction, does a good Mr Micawber act and is still claiming he will run an annual budget surplus by the middle of the next decade. That is twaddle, of course, and the markets know it. They also know the Brexit negotiations are not going well. Which is why on Friday, just as we were getting the bad news on government borrowing, Bank of America announced it was moving its European hub from London to Dublin. Rats and sinking ships come to mind.

The media and political class are currently fixated by Brexit, as well they should. But the looming economic difficulties triggered by the rise in inflation could prove just as dangerous. The two crises are connected, of course. Inflation has jumped in the UK because of the sharp fall in the value of the pound after the Brexit referendum in June 2016. The markets started selling sterling because they fear (rightly) the economic costs to Britain of leaving our largest trading partner.

Leading market traders have been trying to talk up the value of sterling in recent weeks, hoping desperately that the Cabinet would stop its open civil war. I guess these traders had made some wrong financial bets and were in a panic when Cabinet members gave every sign of taking their jackets off and having a punch-up on the doorstep of Number 10. However, as a rule, when currency traders start telling you the sun is going to shine, get out your umbrella.

It duly rained on the currency markets on Friday, with the pound hitting an eight-month low against the euro just in time for the holidays. At some airports – admittedly always the worst place to exchange your money — UK holidaymakers heading for Europe got the worst exchange rates on record, with the pound falling to less than €1. If you were flying to the EU in the summer of 2015, you’d have got circa €1.41 for each pound.

The falling pound means everything we import costs more. That, in turn, has caused consumer spending to fall. Result: the UK economy grew just 0.2 per cent in the first quarter of 2017, making Britain the slowest growing major economy on the entire planet. And that, folks, is what Brexit is all about.

But didn’t consumer price inflation drop in June? Yes: from 2.9 per cent (a four-year high) to 2.6 per cent? Well, hallelujah! Even at 2.6 per cent, inflation is still running much higher than wage growth. So your wallet and purse are still being squeezed. True, there are more jobs about. But UK employers (especially the government and local authorities) are rubbish at paying decent wages. In fact, the UK is declining into a low-wage, low-productivity economy. In the first three months of this year, productivity fell by 0.5 per cent, taking it back to the same level as in 2008 when the banking crisis started. No productivity rises means no wage rises. Poverty is here to stay in the Good Old UK.

I can imagine the UK in the year 2037. Folk will now have to work till they are 68 before getting a state pension. That’s a lot of sixty-somethings in the gig economy, out in the evening rush-hour delivering pizzas for the minimum wage. I just hope the NHS, assuming we still have one, can cope with the knee and hip replacements so our sixty-somethings can pedal and climb stairs all day. (I’m kidding, of course. By 2037, driverless cars and drones will be doing these deliveries, and our aging workforce will be on the scrap heap.) SO how do we get out of this mess? Hopefully, the reality of what Brexit means might dawn before it is too late. I believe the SNP government should call our own local referendum to test Scottish public opinion on the outcome of the Brexit deal, in early 2019. That will put pressure now on the negotiators to keep the UK in the single market.

But we also need a major change of economic policy to cope with inflation. An added complication is that at some point the Bank of England will start raising interest rates. We’ve not had an official rate rise for a decade. But a few days ago, one of the members of the committee of the Bank that sets rates — Michael Saunders — warned that such a hike could come soon. The idea would be to force an increase in the value of sterling. Saunders is also worried that wages will start to rise and wants to discourage employers from giving in to unions.

Here’s my worry: if the Bank of England raises rates soon, it will hurt ordinary families by forcing up mortgage rates and credit card bills. By the way, it will also mean the Treasury paying more interest on the national debt, which implies cuts to public spending. All of which signals slower economic growth. It’s great to still be part of Great Britain, isn’t it?

Back to solutions: the only reliable method workers have for protecting themselves from the ravages of inflation is to demand higher wages. And back this with industrial action. That may sound like a throwback to the 1970s, when (supposedly) the UK was turned into a basket case by the trades unions. Actually, there was a significant improvement in output during the 1970s precisely because we had just joined the European Economic Community. With the exception of 1977, earnings rose faster than prices throughout the period. As a result, people were better off. Home-ownership shot up and the number of folk taking foreign holidays went from four to 13 million. And Scotland built its own North Sea oil industry from scratch. That sounds a lot better than the last ten years.

The reality of the 1970s that upset the Tory media was that workers did not bow and scrape but demanded wage increases to protect themselves against inflation. There’s also a lesson here for the Scottish Government. If we really have binned the public sector pay cap, then wages (and allowances for carers) will have to go up by more than inflation, to protect real incomes. There is no point to an SNP administration if we can’t guarantee that.

What happens if a Tory Chancellor tries to block a Scottish Government paying Scottish workers a living wage? But Hammond is already borrowing more himself. So he has no genuine grounds for stopping the Scottish Government following his example. And unlike the Chancellor, the SNP government will be paying workers rather than adding to the excess profits of the big banks. Game on.