Comment: The economy must take its medicine regularly

There is still a strong whiff of the late 1980s about the atmosphere of central London, with its shortage of taxis and restaurant seats, and plethora of cranes and scaffolding. But there are also a few straws in the wind suggesting that the booming economy is already coming to heel. It is far too early to spot a trend with only a survey or two to rely on, but economists are hoping that the purchasing managers' reports earlier this week and yesterday's CBI sales survey mean the economy is gliding gently towards sustainable growth.

If this turns out to be the case, it will be an early and striking justification of the Chancellor's decision to give the Bank of England its independence. It will also vindicate the Bank's decision to increase interest rates for four months on the trot, despite an intense lobbying effort against it by industrialists complaining about the strength of the pound.

So far, the Bank's handling of interest rates seems to have been remarkably clever. It has also managed to take the steam out of the pound's ascent by issuing a statement which brought expectations about future interest rate rises back down to earth.

But even if growth does now slow down, despite the boost from windfall spending, the pound and its likely effects on exports will remain one of the big worries for the economy. New figures on car and high street sales show unambiguously that imports are climbing at an alarming rate. Recent industry surveys have also suggested a dive in export orders.

So even if the Bank has applied the right medicine, the economy will still have to go through one of the symptoms of overheating in the form of a wider trade deficit.

Nor is it certain that inflation will stay on target without further interest rate increases, even if the economy is already slowing. Inflation lags growth by two years or more, and all forecasts show it is on a rising trend. There is a good case for arguing that it might climb above the 3.5 per cent upper limit on the Government's target without another dose of Bank medicine.

So although the economy is looking hunky-dory right now, by this time next year we could be seeing a yawning trade deficit, declining growth, a falling pound and rising inflation. Sensible policies since 1 May mean these will not be as bad as they might, but there is no guarantee that because the boom is short it means no hangover.