Let's keep this miracle in perspective: Comment

Gosh, it's a miracle, and just in time for Christmas too. In words that could almost have flowed directly from the Chancellor's own office, the OECD has come out firmly in support of the Government's claim that its policies have increased the British economy's potential for growth without inflation. But before Mr Clarke's rhetoric carries us and him away, it is important to get the improvement into perspective. Britain's performance relative to other big industrial countries is not as bad as it once was. We are talking a small miracle, although none the less welcome for that.

Conservative triumphalism about this week's report from the OECD is focusing on the fact that it predicts the UK will have the second-fastest growth rate in the G7 for the next two years, and has enjoyed higher than average growth since 1993. It should be borne in mind, however, that UK growth was lower than the G7 average during the precedingdownturn. The new forecasts thus demonstrate the well-known fact - that the British economy is more volatile than most others.

The organisation reserves its real praise for the fact that it reckons inflation will remain in abeyance at least until 1998, the fifth year of growth at or above trend. According to the OECD, the new flexibility of the labour market is paying off, with no sign of upward pressure on wages. Look at the detail, however, and you see that the OECD is going out on a limb to justify these forecasts. Its economists reckon that only a quarter-point rise in base rates is required to keep inflation below the 2.5 per cent target. This is a good deal more optimistic than others. Most economists are talking about base rates rising from the current 6 per cent to more than 7 per cent in a year or two.

And despite the OECD's optimism, it is still predicting that the UK inflation rate will remain one of the highest in the G7. Sceptics might note that it is easy to achieve a better than normal performance in a low-inflation world. The longer the economy grows at an above-normal pace, and the faster unemployment falls, the greater the danger that wages and inflation will pick up.