Commentary: No-lose optimism at the Treasury

The monthly monetary report is as cautiously optimistic as the twice burnt, three times shy Treasury will allow. The recent news suggests that national output may be bumping along a bottom with a gently rising trend, rather than bumping down some shallow stairs. The CBI survey showed that the balance of manufacturers expecting output to rise now outstrips those who expect it to fall by a big enough margin to point to a real increase. Cash in the economy is growing strongly, and retail sales volumes in January bounced back from their December drop (after adjusting for Christmas). Car sales are also rising.

We have, of course, had flurries of optimistic data before. The difference this time is perhaps the degree of policy relaxation that has taken place: interest rates, sterling and budgetary policy are all pushing the economy upwards at the moment. The two big factors constraining growth are the unprecedented level of debt, and the downturn in our main Continental markets. Nevertheless, the risks of a renewed fall in British output are diminishing even if our growth is now likely to prove so slow that unemployment will go on rising for a while.

Before inhaling any new Treasury campaign to talk up the economy, it is worth remembering where it is coming from. It has a clear political interest in recovery, of course. But hopes of a real recovery will also bolster sterling on the foreign exchanges, since market participants will begin to expect that the gap between UK and German interest rates will close. The Chancellor wins either way: he gets his recovery, or he makes room for more interest rate cuts.