View from City Road: Heady interpretation of the good news

It is tempting to conclude from yesterday's unexpected leap in factory output that the economy is shrugging off April's tax increases and limbering up for a boom. Kenneth Clarke's assertion that the figures are 'the best news on the economy so far this year' should nevertheless be seen for what it is - pure electioneering.

High street spending, industrial production, unemployment, consumer and business confidence are all moving in the right direction, but if the tax increases are having a significant effect it would not show up in the figures yet.

Arguments for caution include subdued car registrations and evidence that the housing market is weakening, which in turn suggests that spending on expensive consumer goods may be set to weaken.

It is important to remember that the tax increases are in large part intended to restrain consumer spending to ensure that the recovery remains steady and sustainable.

The really worrying thing is that Mr Clarke still seems to believe that a slowdown in consumer spending would justify another cut in interest rates, helping to undo that effect.