Gordon Brown had reasons for optimism when he arrived at his Fife home for his Easter 'break'. Labour's latest private polling showed that, after slipping back since the start of the year as job losses mounted, he had again clawed his way back into the game by doing what he does best – focusing relentlessly on the economy and dominating the political agenda

Following his successful G20 London summit, public confidence in both Brown and his government had returned to their levels of last November, after the initial rescue of the banks. Despite the recession, the polling showed, many people had noticed a rise in their real disposable income after mortgage rates fell and the cost of living decreased due to low inflation.

The polling, which has helped to shape the strategy for next Wednesday's budget, reinforced the prime minister in his view that people do not want a "do-nothing" approach to the recession – the charge he repeatedly throws at the Tories, who furiously deny it.

Brown was confident of continuing his fightback in the budget, timed to translate the G20 pledges into action at home. But his optimism was brought to a sudden halt when aides rang with news of a scandal that was to blow his strategy off course. Emails leaked to last weekend's newspapers revealed a plan by Damian McBride, one of his closest aides, to smear senior Tories by peddling false allegations online. Although the proposal was scrapped, the leak was terribly damaging.

Instead of preparing the ground for the budget with a series of economic initiatives, Brown spent the past week trying to clear up the mess, which did not end when McBride resigned.

And the handling of the crisis only prolonged Brown's agony. Although he wrote to McBride's intended Tory victims, he characteristically refused to say sorry until Thursday, giving the story oxygen. Allies are nervous that more emails about the smear campaign may emerge. They are desperate to "move on" and can't wait for next week's budget to put the economy back at the top of the political agenda.

Cabinet ministers are appalled, and admit the McBride affair has inflicted serious damage. "The only way we can win the election is by making it a choice on the economy," one said. "Once we are pushed off that, it becomes a referendum and, after 13 years in power, there is no hope for us. That's why what happened this week was so bad for us and for Gordon."

The only crumb of comfort for Brownites is their hope that, when the election comes, people will almost certainly vote with the economy in their mind rather than a Labour smear campaign that came to light a year earlier.

Brown, for all the faults exposed last week, might well hold the upper hand over David Cameron in a straight choice on the economy. But it will be harder now to portray Cameron and George Osborne as inexperienced, short-term tacticians with no long-term strategy who treat politics as a game, as Labour had intended.

Instead, Downing Street had to admit McBride had resorted to "juvenile" tactics, making Cameron look more substantial and Brown the grubby tactician.

Just as the Tories found it virtually impossible to land blows on Tony Blair in the run-up to the 1997 election, Labour may find Cameron an elusive target.

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