Latest figures from the US - where the downturn and popular awareness of it is in advance of the UK - show consumer spending fell at an annual rate of 3.1% between July and September. That is the sharpest fall since 1980, and the annual fall in purchases of big items - furniture and cars - was 14%.

The figures surprised economists - though what does not these days? Yet the contraction in the US economy, at 0.3% over the quarter, was lower than in the UK where GDP fell 0.5% in the same period. Consider the relative size of the two economies - the world's largest against one considerably smaller than Germany's - and you get some idea of the problems facing Britain.

UK house prices are now falling at the fastest rate since the early 1950s, making a mockery of previous claims that the current house-price decline would not be as bad as the early 1990s - remember those? The real decline of 18% in the past year, allowing for inflation, is worse than the headline rate of 14.6% according to Nationwide figures. That compares to an 18.8% fall spread over four years from 1989 to 1993.

None of the above figures include the last month, remember - when the government nationalised the banks, Iceland went bust and the world's financial system lost $2.8 trillion.

Economists increasingly predict recession through 2009 and stagnation for 2010, which sounds like small chance of recovery before 2011. In the meantime, a Credit Suisse analyst suggests, "households are spending on things they need, not on things they want".

The Chartered Institute of Personnel and Development reports one in four UK employers are preparing to make staff redundant, warning of "a torrent of bad news" for the labour market. Managers, white-collar professionals and skilled non-manual workers are "most likely to suffer redundancy" says the CIPD - the kind of people who generally holiday abroad, maybe more than once a year.

Verbal repetition or chanting to ward off danger and bring reward has a long tradition. Unfortunately, so do recessions - and mantras have yet to be shown to help.

A 2% year-on-year decline in sales this summer, when TUI Travel and Thomas Cook - the two biggest companies, controlling around half the market - reduced mainstream capacity by more than 10%, is remarkable.

It meant the average rise in prices exceeded the headline rate of inflation. That is not great news for bargain hunters, but late-discount deals have been the bane of the industry for as long as anyone can remember.

The collapse of XL Leisure Group in September removed another 7% of capacity - a body blow for the staff, a shame for the minority of holidaymakers who were unprotected and a headache for agents and tour operators, but no disaster for the industry's outlook as a whole.

Also remarkable, overall bookings for this winter to September were 1% up year on year - and bookings for September itself were up 3%.

In both seasons, it has been the low-price business that has been lost while more costly sales have picked up - suggesting those with less cash are trading down with Ryanair or no longer flying. That conclusion appears borne out by latest UK air traffic figures suggesting a 5% fall in passenger numbers in September compared with a year ago.

Summer 2009 remains too far off to call. Ascent reported a 3% drop in September bookings on a year ago - which would leave demand ahead of capacity in the coming year. But how many people would commit to a holiday next August at the moment? The post-Christmas sales will provide the first real picture of what to expect.

Two notes of caution are in order.

First - many smaller travel businesses will struggle to find airlines seats as a result of XL Airways' collapse and the resulting prices may deter a proportion of clients, hitting next summer's market. Yet this is no time for start-up carriers to jump in. Tour operators would be wise not to pin hopes on such an outcome.

Second - the Ascent figures take us up to the end of September. But the world economy - and the outlook for the UK in particular - took a decisive turn for the worse in October. The recession penny has only really dropped since the government nationalised many of the high-street banks on October 8. We are in a new situation.

Only this summer, Marriott was complaining of a crisis in human resources as demand for hotel staff outstripped the available workforce. Now it is compelled to warn of reduced investment and cuts at its Maryland headquarters, announcing it has called on $900 million in credit to cover a cash shortfall.

The reason is a sharp fall in revenue per available room (revpar). Having reported a 5.6% increase in revpar in the second quarter of the year and 3.4% increase in the third, Marriott forecast a 3% fall in the final three months of the year and flat or falling revenues per room throughout next year.

Elsewhere, Airbus has agreed to pay French aircraft-parts manufacturer Latecoere in advance for work on the A380 superjumbo owing to a "temporary liquidity problem" at the company. In other words, Airbus is injecting cash to keep the parts-maker going. According to an unnamed source: "Nobody can afford to see Latecoere in difficulty." Production of the A380 is already way behind schedule.

Back in the US, Virgin Group is ready to inject an unspecified sum into US domestic carrier Virgin America, which began flying last year and in which the group holds a 25% stake. Virgin America has already sought an additional $100 million this year.

In the circumstances, those hoping the UK can escape the worst of the economic showdown might want to consider the following. While US politicians have fought over a $700 billion bail out of the banking system - about £390 billion at the current exchange rate - the UK government and Bank of England have so far spent £350 billion if you total the injections of liquidity and nationalisations of Northern Rock and Bradford and Bingley.

This is the estimate of The Guardian economic expert Will Hutton, not me - and the Treasury is reportedly working on plans for an even bigger rescue.

Given the relative sizes of the US and UK economies, the proportion of gross domestic product these sums represent and the likely impact on public spending and taxation, which economy faces the bigger hit do you think?

Yesterday the Organisation for Economic Cooperation and Development forecast recession for the UK this quarter and next - i.e. now.

The recession will not officially be identified until next year, of course. In UK economic circles a recession is defined by a contraction in two successive, three-month periods.

This definition is not an iron law and you can pick another - rather like the inflation rate. The official rate is defined by the government's Consumer Prices Index, which provides a fairly limited guide to what is happening to prices. Check the official rate against your quarterly supermarket or fuel bills if in doubt.

So the OECD says the UK's economy is shrinking as we shelter from the current downpour and will suffer a sharper decline in October-December.

Combine this with Darling's astonishing suggestion at the weekend that Britain faces potentially "the worst economic conditions in 60 years" and you will understand the plunge in the pound against the euro. You may even think you would rather be in New Orleans.

We already know the economy stagnated in April-June and grew just 0.3% in the first three months of the year - the Office for National Statistics has told us.

Last week, the CBI reported the retail sales figures for August were the worst in 25 years. The Office for National Statistics did not tell us that - its most recent figures suggested a small recovery.

We are in dangerous territory when economists do not trust government figures. Yet Darling has been roundly ridiculed for his comments.

Britain clearly is not experiencing its worst economic crisis in 60 years - although why Darling chose 1948 for the comparison is beyond me. There was still rationing in 1948, but this was the year the NHS was founded and the Marshall Plan was in swing across Western Europe - not signs of deep crisis. Did he simply wish to avoid saying "for 75 years"?

It is not even clear yet that this is the worst economic crisis since the early 1980s. The situation is almost certainly worse than the early 1990s.

However, possibly the most disturbing of Darling's comments attracted less attention. It was his warning that the downturn could be "profound and long-lasting". The Chancellor was basically saying - 'whatever the government does, things will get worse for the foreseeable future'. 

Can it be only a fortnight since the British Chambers of Commerce was solemnly warning that the UK may enter a technical recession in six to nine months? "We expect growth to be slightly negative or zero," said the BCC.

Most economic forecasts tend to be over-optimistic - sometimes hopelessly so - although the British Chambers of Commerce appears more hopeless than most.

Darling has not endeared himself to anyone, but it least he was fairly honest. Reshuffle anyone?

The airline has long-term debts in excess of Euro1.1 billion, swelled by half-year losses of Euro400 million, and has been on the canvas for a decade. It barely got back on its feet following a post-2001 battering, and its footwork in the current bout with the oil price and banking crisis has been laboured. Alitalia is in no condition to go 14 rounds with a recession.

The board counted to ten and out on Friday. Now comes the tricky bit.

The liquidation and rebirth of the carrier in a merger with Italian domestic rival Air One may sound like a neat solution, but could be fraught.

We can assume most of the investment is in place from a 16-strong Italian consortium - a major consideration in current circumstances. Air France-KLM has expressed an interest in taking a minority stake, Lufthansa may do likewise, and the government in Rome will not drive a hard bargain in relinquishing its 49.9% stake. Think sweeteners more than smelling salts.

But wait - what scuppered the proposed takeover by Air France-KLM, aside from the opposition of soon-to-be-PM Silvio Berlusconi? It was the unions, which objected to thousands of job losses and threatened strike action - something in which they have experience.

Now the liquidation masterminded by banking group Intesa Sanpaolo threatens 7,000 redundancies from a workforce of 18,000. I make that more than one in three. The threat of being axed could demoralise or unify opposition to the plan. We will soon see which.

The remaining workers will be on new contracts. We can assume the new owners intend these to be less generous than the old. We can also assume those expected to accept the new contracts won't like it.

The plan is largely seen as the work of Berlusconi, who only recently returned as PM, but whose two previous terms of office have ended badly following waves of strikes and popular protest. Alitalia could form the terrain for the first battle of his new premiership.

If it does, Intesa Sanpaolo's announcement that formation of the new airline will take four weeks may prove optimistic.

The Financial Times quotes analyst Paul Hickman of KBC Peel Hunt suggesting a sell off of Gatwick, Stansted and Glasgow or Edinburgh airports could adversely affect the Restaurant Group - the company behind the Garfunkel's and Chiquito eating chains.

The group runs 44 airport concessions, 30 at BAA terminals. The FT points out new airport owners might bring in other companies to run these. Heaven forbid.

"The implications are not positive for the Restaurant Group, which has built up its concessions business largely on its relationship with BAA," says Hickman.

Depending on your view of Garfunkel's food this might be a reason to insist the airport operator divest.

However, there is a contrary view that may yet belatedly enhance BAA's reputation - and it comes from Restaurant Group chief executive Andrew Page.

He says: "BAA limits how much exposure a retailer can have in its airports, while other airport operators do not." So a sell off will not faze Garfunkel's and Chiquito. "We see this more as an opportunity than a threat," says Page.

Surely this is grounds enough to call off the Competition Commission and uphold BAA's monopoly?

Can British Airways finally achieve its aim of merging transatlantic operations with the world's biggest carrier, American Airlines?

The joint business agreement between BA, American and Iberia will require anti-trust immunity and Virgin Atlantic wasted no time in firing the first shots against. In fact, it fired a volley - with letters to the leading US presidential hopefuls and almost daily press releases. Given the carriers' previous, this could be a fight fit for Madison Square Garden.

Richard Branson labelled the proposed alliance "a monster monopoly" that would cut competition and push up fares. BA's Willie Walsh would expect nothing less. Naturally, Virgin fears being squeezed. But if Branson is right, the regulators could be expected to give the proposal short shrift.

BA has been here before - although not with Iberia in tow - in 1997 and 2001. The second of these applications would have succeeded if the pair had been prepared to give up 16 daily departures at Heathrow. BA balked at that and probably would do so again.

There is no reason to suppose the competition regulators will rule out the partnership this time - the question will be the price.

Walsh believes the situation has changed enough for him to win this time or he would not have applied for immunity. He has already said a third failure would rule out a further application.

So what has changed?

The first thing to be aware of is that this is the silly season, so even stories that are not of the "Freddie Star ate my UFO" variety can take up more column inches than they might otherwise deserve.

However, the facts here appear straightforward. Ryanair insists it can, will and has cancelled passengers' bookings made through screen-scraping websites - including sites the BBC identified as "internet travel agents".

This could affect up to 1,000 passengers a day across Europe - Ryanair admits that. We can guess how those affected feel about it. If I was among them I certainly would not conclude that next time a direct booking with Ryanair was the way to go.

Strangely, on Tuesday a Ryanair spokeswoman told me no passenger had, in fact, been turned back from check in. However, the following day a different spokeswoman refused to confirm this, insisting only: "Cancellations have been made. Cancellations have been made."

It is bad news for the individuals because they could go to jail - lawyers say for up to five years. The OFT appears keen to make an example of senior company figures following a spate of high-profile investigations into alleged cartels across a series of industries - tobacco, construction, supermarket retailing.

Of course, being charged is not the same as being found guilty. It provides an opportunity to establish innocence. But there is a sizeable risk. Careers and personal lives are on the line as well as liberty.

It is bad news for the airline because mud sticks and because the current head of sales is among those charged, not just those who left in the immediate aftermath of exposure. It is bad news because a line that had been drawn under the affair has been erased.

BA boss Willie Walsh acted swiftly when the collusion with Virgin Atlantic on fuel surcharges first became public. The carrier admitted the offence and paid its fines - totalling £270 million here and in the US - while maintaining a thinly veiled hostility towards Virgin for spilling the beans.

The collusion, between 2004 and February 2006, began before Walsh's time. But he was shadowing outgoing chief executive Rod Eddington from May 2005 and took over as head in September that year. The acts of collusion only ended five months later and were made public in June 2006 after Virgin went to the OFT.

What is an Australian group to do with these fickle UK agency consortia?

Advantage has refused to confirm courtship was even in the air, let alone called off this week. But the sighs - sorry, signs - have been unmistakeable.

Without wanting to be brutal and reduce a relationship to economics, there were sound reasons for the pair to get together - yet possibly sounder ones for not doing.

This is not a form of Tupperware or handy rain apparel, but the Air Travel Insolvency Protection Advisory Committee.

Let's get the other acronyms out of the way. ATIPAC advises the consumer protection group of the Civil Aviation Authority (CAA), the aviation regulator which also oversees the Air Tour Operator Licence (ATOL) system.

A UK tour operator cannot do business without an ATOL and, until April this year, was required to provide a bond - its size determined by the number of people the company sent on holiday. The bond covered the cost of repaying clients or repatriating them in the event of the company - or any other supplier of the holiday - going bust.

The Air Travel Trust Fund, with a £30-million overdraft facility guaranteed by the government, provided a back up if a bond did not cover the number of advance bookings or a company collapsed in peak season. Some years it was needed more than others.

It was needed more than others two years ago when, in August 2006, Tapestry Holidays failed. The tour operator's bond covered £1.7 million of the resulting costs, but the fund had to pay out a further £2.5 million. This came close to bankrupting the scheme. The government had to extend its guarantee of the fund's overdraft from £18 million to £30 million.

Fast forward to this year and 25 travel company failures in the 12 months to the end of March resulted in a bill to the fund of just £374,000, despite the total payout to consumers reaching more than £5.3 million. That is because the bonds broadly covered everything. The system worked.

So in April it was scrapped.

The new system is funded by a £1 levy or ATOL Protection Contribution (APC) added to package-holiday prices and some seat-only sales on charter airlines - sales that are ATOL-protected.

The requirement for bonds disappeared for all but a handful of companies - those that have modified their business or reported problems and new entrants to the industry.

The tour operators were happy - bonds generally cost them more than £1 per passenger to put in place.

The government was happy - it wants the trust fund overdraft paid off and the APC payments should do that over the next three years.

ATIPAC was happy - it has argued for a levy on holidays to provide funds for consumer protection for 15 years.

Everyone was broadly happy, except for the fact that scheduled airlines remain outside the scheme at their own insistence - a fact that galls the tour operators, the CAA, ATIPAC and almost everybody but government ministers and the airlines.

Anyway, the point about the ATIPAC report is that interest payments on the overdrawn fund were at least two-and-a-half times the total pay out for company failures.

We won't know the total interest payments for another week or so, upon release of the annual accounts. But the fund paid £900,000 in interest on an overdraft of £20.1 million in the year to March 2007, and last year's overdraft will have been greater.

No wonder ATIPAC wanted a levy to cut the overdraft and replenish a fund that has been in debt for more than decade.

But what a shame ministers waited for the industry to be on the cusp of an economic crisis to act - leaving us to hope the replacement scheme is up to the rigorous testing it is likely to undergo over the coming months.

That is quite a statement. But it is not mine. The words are BA chairman Martin Broughton's, from his address to shareholders at the airline's annual general meeting last week.

Broughton told the AGM the rapid rise in fuel costs had forced not just one but three revisions of the airline's business plan in the past four months. He warned it would be a "considerable achievement" to avoid reporting a loss this year.

It rather sounds as though BA shareholders, having recently received their first dividend payment in eight years, should expect to wait a while for another. At least one analyst believes the airline's payment of that dividend - equivalent to about a week's fuel costs - was "daft".

But how serious is the crisis?

Press reports focus on planned cutbacks by BA - a capacity reduction of up to 5% this winter and a partial freeze on recruitment. BA chief executive Willie Walsh was pretty explicit about the limits to this last week although details will not be announced until next month.

According to the Financial Times, "Walsh made clear BA would not be grounding any aircraft." Instead, the airline will "trim capacity by cutting the frequency on some short-haul routes". This week, head of corporate sales Richard Tams insisted: "The cuts will not have a significant impact on the business schedule. Any cuts will be where we have multiple services."

Walsh intends to keep operations broadly as they are instead of expanding by 2.5% or so in the current financial year as originally planned. "Given that expansion will not take place, we don't need to recruit people for the winter," he said. That is unfortunate for those hoping to get a job and will mean BA workers have to cover for departing colleagues, but it does not sound like the actions of a man reacting to the greatest crisis in aviation's history.

BA has been conducting a review of its operations under the codename Project Columbus. The title could be considered unfortunate. Columbus may be commemorated for stumbling upon the Americas, but his transatlantic ventures led to a good deal of destruction - well, genocide, actually. Let us hope that is not an omen.

Officials of the union Unite are concerned about impending job cuts. Walsh has played down their fears, saying there are no plans to cut jobs - although that could change.

He did warn again last week that fares will rise, but Walsh has consistently said that. In fact, BA raised most of its long-haul fares by 5% last month on top of a succession of increases in fuel surcharges. Walsh obviously means they have some way to rise yet.

The BA boss also repeated that fare rises "will have an impact on demand". He just thinks BA will be less affected than other carriers because half its passengers are business travellers who are generally less sensitive to price rises, particularly on long-haul routes.

If BA fails to match the "considerable achievement" Broughton spoke of, it will mean the high oil price wipes out a record profit of £883 million for the year to March.

But Broughton is right despite the strong position of BA - this probably is the biggest crisis the airline industry has faced.

Consider its rivals. We can rule out the crisis of 1929 and the hungry thirties when commercial flight was in its infancy. The Second World War wasn't a great time for commercial carriers, but the comparison does not help us.

Flying was big business by the time oil quadrupled in price in 1973-74, but the era of mass-market leisure travel was just beginning. When oil doubled in price in 1979-80 and the UK then suffered its worst post-war recession, some of the world's biggest economies - Germany, Japan - were barely affected. By the time recession hit again in the early 1990s the oil price had lowered. Airlines largely flew on through.

The attacks of September 11 2001 triggered a fall in demand in the US and a crisis for the country's airlines. But with the exception of Swissair and Sabena, Europe's major airlines carried on.

The situation is worse this time. In essence, there are two economic crises - a recession with its roots in the US and an inflationary crisis driven by rapid growth primarily in China. Hence we see economic downturn and rising inflation - or good, old stagflation to use the 1970s term. God forbid bell bottoms return, too.

For airlines, the oil price is a killer. BA has said it cannot make money with oil at $125 a barrel. Ryanair has said similar. Neither expect oil to remain at its current price, but no one knows what the future price will be.

At the same time, most airlines have cut close to the bone already - mainly in reaction to the low-cost carriers. There is not a lot of slack to take in.

Of course, BA is not buying most of its oil at $125 a barrel. It is paying nearer $84 for most of its fuel. So it should still be making money. The key will be what happens as the hedging deals - the advance agreements to buy oil at a cheaper price - run out.

No doubt there will still be bargains for some consumers, but average fares will have to rise in line with the fuel price. If fuel now comprises one third to half of airline operating costs and the oil price has doubled in a year, fares will broadly have to rise by between one-sixth and one-quarter. OK, I have vastly over-simplified the maths - but the general point stands.

Rather than hike prices to that extent in one hit, carriers will ground aircraft, conserve cash and hope rivals go bust.

Be ready for a bleak October when winter schedules kick in.

Take the airline's view - and that of most commentators - and it is a hard negotiating ploy. Airports everywhere take note - fail to bow to Michael O'Leary's demands and his aircraft will sit on the ground rather than fly tourists into and duty-free shoppers out of your terminals.

The contrary view is that Ryanair has been caught out. O'Leary banked on the oil price going down and did not hedge. Now he is paying the market rate - $128 a barrel last week for crude, $147 the week before - while British Airways pays $84 a barrel. When fuel makes up half your costs that hurts.

What do you do, especially when you have enough aircraft ordered to double the size of your fleet by 2012 and you know you won't fill the seats even at £1 a time? You ground some aircraft - and make someone else responsible.

When Ryanair announced it was cutting services at Stansted by 14% this winter it blamed airport operator BAA for increasing charges, declaring Stansted was the most expensive airport it uses. Well it would be. Stansted is a major London airport. If BAA wanted to take the same line it might suggest, "Fly off somewhere else then."

Ryanair also raged against the Civil Aviation Authority and "the total failure of the CAA regulatory regime to control unjustified cost increases". At a press conference, O'Leary reportedly referred to the CAA as "twats" and Stansted as "rapists" (The Guardian, July 18). Leave aside the trivialisation of sexual violence, O'Leary's press conferences are generally entertaining in a Richard Littlejohn kind of way. But might he be rattled?

The carrier's announcements of cutbacks at Dublin and elsewhere were similarly bullish. A 12% reduction in weekly services at Dublin, where Ryanair will base four fewer aircraft than last winter, is the consequence of Dublin being "the second-most expensive of Ryanair's base airports" and Ireland's equivalent of the CAA being a "hopeless aviation regulator".

In both cases, the carrier had sought reductions in charges and been rebuffed. O'Leary told reporters BAA had dismissed Ryanair's "reasonable" request to cancel its fees. "We asked BAA for a 100% reduction in landing fees and we a received a two-word response, the second being 'off'," he said.

One analyst suggested the cuts represent "a new level of assertiveness in airport charges negotiations" - true at one level, but not the whole truth.

In announcing the temporary closure of seven bases in continental Europe, including Palma, Valencia, Salzburg and Budapest, Ryanair hinted at the real reason for the capacity reductions and fiery justifications. It argued: "Costs at these airports are among the most expensive in Europe and far outweigh the potential revenue passengers are prepared to pay."

In other words, Ryanair is struggling to maintain its business model with oil at the current price. O'Leary came close to being explicit on this point when he told reporters: "We are clearly not going to be selling millions of £1 fares on flights from Stansted if we are over-paying Stansted by £10 per passenger."

BAA took exception to the figures. A spokesman said: "Numbers and statistics have been banded around, many of which we simply don't recognise."

The figures are troublesome. The Ryanair release on Stansted refers both to a 25% reduction in aircraft and a 22% reduction. It says the number of aircraft will be reduced from 36 last winter to 28 this. However, the Financial Times, quoting O'Leary, reported 15 aircraft would be withdrawn. The Guardian decided 12 would be grounded.

Perhaps in exasperation, BAA suggested: "Surely this is a time for our industry to pull together, not spat by press release." Clearly, the airport operator has not been reading Ryanair's previous communications or paying attention to the way the airline is run.

Of course, Ryanair will seek to batter down airport charges. It will no doubt have some success. At Stansted, BAA hinted a compromise might be possible, revealing: "We have met with Ryanair to discuss how best to help each other and look forward to continuing to do so." That may or may not please rival carriers.

However, Ryanair may struggle to get its way at Stansted and Dublin - which are core to its operations, remember - since both are subject to regulatory bodies that are required by law not to listen solely to a chief executive in a rugby shirt.

If Ryanair were to extend its logic and withdraw from these airports, how would it pick up the traffic it requires to ferry millions around Europe to airfields most have seldom heard of and which therefore charge it nothing?

Why should airports served by other carriers slash charges to Ryanair to subsidise the give-away offers that may put rivals out of business?

Ah, the give-aways. There is no let up in the bargain basement. Last Wednesday Ryanair announced a three-day fire sale of one million seats at £1, including tax and charges, for travel between September 1 and the end of October.

Referring to the European Commission's recent announcement that all fares in Europe will have to include non-optional charges from next year, Ryanair said: "The European Union fat cats claim their decision on airline advertising marks the demise of £1 airfares. This is Rubbish."

Yes. It is.

Even those parts regularly consigned to the historical bin bag by commentators refuse to be taken away. Travel agents are used to hearing they are finished, but there are more on the high street now than in the early 1980s.

Yet there are times when optimism shades into whistling in the dark. Give me a pound for every time I have heard someone express concern about "talking the industry down" and I would be up there with Peter Long.

So a survey of the optimism among small and medium-sized companies makes interesting reading. The Entrepreneurs' Index compiled on behalf of Bowmark, a private-equity firm, aims to track how positive directors of companies in various sectors feel about their businesses.

It finds the confidence of travel company heads in their own business has fallen 10 percentage points in the last six months and confidence in the future of the sector as a whole has fallen by 16 points.

That leaves 62% of travel company directors still positive about their own business and 47% positive about the industry. But as Bowmark managing partner Charles Ind points out: "These are entrepreneurial firms and they tend to be bullish." The results are worse then expected, he says.

The contrast with other sectors - business services, manufacturing, healthcare and publishing and media - is revealing.

Travel and leisure has the lowest optimism ratings and only publishing and media suffered a greater fall in confidence over the past half year. The media is taking a hiding from cuts in advertising, but companies in the sector still appear more optimistic than those in travel. Remarkably, the survey suggests 42% of media firms expect revenue to grow by 20% or more over the next year. A mere 17% of travel companies expect similar growth.

A few words of caution - first, I do not have the full results of the survey, just six pages of highlights, so it is difficult to judge the findings. However, let us assume a private-equity company knows how to assess business confidence.

Second, the survey sample is small - involving only 163 small and medium-sized companies - of which 30 are travel and leisure firms.

Third, bracketing travel and leisure together is normal in the City, but is not entirely helpful here. The leisure sector includes hotel groups, which form part of the travel industry, and restaurants, bars and casinos which generally do not.

That said, at least two other findings are telling. Four out of five of the travel and leisure companies surveyed believe government intervention is damaging their business - up from 68% six months ago. The same four out of five say taxes are a burden, almost double the percentage last time out. In other sectors, government legislation is a problem to 70% and taxes an obstacle to two-thirds.

Is travel more heavily taxed than other sectors? It has not been subject to tax increases above those on other industries in the past six months - unless a higher proportion of travel directors are non-domiciles in the UK or were planning to cash in on the previous rate of Capital Gains Tax.

Could the explanation be that travel companies are hurting more than average and increasingly resentful of costs they cannot avoid or control?

A second point of note is that two-thirds of travel and leisure companies complain of a skills shortage - up from 45% six months ago.

Can there truly have been such a decline in skills in six months, or are the demands of a rapidly changing situation exposing the limitations of a workforce - and managers - schooled in ways of operating that fit an expanding industry? I'm only asking.

Second, because it will suck up consumer spending on necessities, leaving less money for travel - whatever the industry says to the contrary.

Third, because it nails the idea of a cut in interest rates - rising rates are more likely - and means an overall tightening in the economy.

The Consumer Price Index for June shows prices up 3.8% year on year following a 3.3% rise in May. The monthly increase is greater than the 3.3% to 3.7% economists were predicting. But the real picture is worse, since the CPI does not include the cost of housing. The more useful Retail Price Index shows a 4.6% rise last month.

If the price increases were on flat-screen televisions, gourmet meals, Burberry coats or stiletto heels it might be less of a problem. But the biggest rise was in the cost of food - up 9.5% on June 2007.

Unpick the increases and the figures are even more alarming. Price-comparison site mysupermarket led the Times to report pasta up 85% over 12 months, rice up 76%, bread 39%, eggs 36%, cheese 35%, tea 26% and milk also 26%. There is not much in that list that could be deemed discretionary.

The government is trying to enforce a 2.5% cap on pay rises in the public sector, remember - which no doubt includes a lot of people who book holidays and may be less likely to do so if they do not earn more - leading 650,000 council workers to strike tomorrow and Thursday.

Further price increases are on the way. The prices UK manufacturers charge for goods rose 10% in the year to June - the highest for 20 years. Strip out food and the increase was still 6.4%. This is not yet Zimbabwe, but you see where we are heading.

Latest figures from the British Retail Consortium reveal a 2.1% year-on-year increase in sales by revenue - less than half the RPI inflation rate - suggesting retailers are making less money when inflation is factored in.

The pain may not yet have reached the travel sector - the usual quota of "Bad weather sends travel bookings soaring" stories abound. But analyst Ernst & Young warns travel is not immune. Its latest quarterly report on UK quoted companies makes some important points.

First, profit warnings among general retailers are at record levels and clothing sales - largely discretionary spending - show the biggest decline since the early 1980s.

Second, fuel hedging has seen many travel companies through till now but, "If the oil price remains high beyond the life of the hedges, failures look inevitable."

Third, tour operators say they have learned the lessons of past downturns, but the industry is not immune to falling consumer confidence.

Fourth, the new players in travel have no experience of a downturn. Fifth, retailers may drive sales by discounting only at the risk of "crippling effects on profits".

Ernst & Young describes the combination of factors facing the industry as "exceptionally toxic". Pick your poison.