Sean O'Grady: The report was damning – but there's light on the horizon

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The Independent Online

The secret of good comedy, it is often said, is timing. Much the same might be said about politics, and, unfortunately for the Treasury Select Committee (and more happily for the Government) the committee's report comes just as another few fragments of good news arrive to suggest that the worst of the downturn may actually be over, and the recovery, feeble as it is destined to be, may turn up by Christmas. With headlines and chatter about "green shoots" growing, the media might be even be accused of talking us into a recovery.

If you want to know what is going to happen to the British economy you need to listen to the men and women on the economic frontline, the ones getting orders, hiring and firing workers, keeping costs down, making the balance sheet balance. Every month the rather staid sounding Chartered Institute for Purchasing and Supply (they really ought to get themselves a racier title) does just that and publishes a poll of precisely those people. Today comes the latest survey – and what managers are saying is that things are still tough, that they are still laying workers off – but crucially that sentiment and order books are getting better, or at least the rate of decline is bottoming out. That phrase – "bottoming out" – was much used by John Major and his colleagues during the last downturn of the early 1990s, often prematurely and to much derision. Gordon Brown, Peter Mandelson and Alistair Darling might be as wary of it as they are of talking about green shoots, though the World Bank is less shy; they said yesterday that the decline in world trade is "bottoming out", a key factor for a UK recovery. The signs are growing that Mr Darling may have been right after all, at least about this year, and that the economy may stabilise by the year end, though unemployment will still be climbing. There's even an outside chance that we will also see a recovery by then. Mr Darling's Budget forecasts for 2009 have gone from arrant nonsense to marginal possibility in just two short weeks.

So the short run may be better for the economy, and the Government, than seemed possible even a few weeks ago. By next spring, appropriately, some growth ought to appear, and ministers can claim that the UK is clearly on the road to recovery just as they join the campaign trail.

But it is the recovery that we ought really to be worried about now, rather than the recession, the worst of which ought to be behind us. Here the Treasury committee is on much sounder ground in questioning the Government's optimism, and thus the reliability of its views on the public finances. The plain truth is that the task of paying off our vast national debts – public and private – will blunt spending and stymie the recovery for years to come.

The committee is perhaps too polite to spell out to us what it this means. An economist, however, will tell you just how close together the parties will now have to be on the big economic issues – because the room for manoeuvre of a Chancellor of any colour will be tightly constrained. Radical tax cuts or increases in public spending will not be possible, whatever the parties may pretend, because the gilts markets and the Bank of England will effectively veto those plans. If the worst comes to the worst and the UK has to go to the IMF to support its public finances, then the Fund will also stop any Government from getting too wild.

Next stop is the Bank's Inflation Report, published next Wednesday. This will be its authoritative view of the economy and any disagreements with the Government will be seized upon. However, the chances are that the Governor, Mervyn King, and his colleagues will broadly concur with the Treasury view. Covering fire from such a source will be extremely valuable to Mr Brown. With all those attacks on him, the timing couldn't be better for the Prime Minister.