Outlook: Economy

HE METAPHORICAL temperature of the economy is rising with the thermometer. Spring is opening shoppers' wallets and even sending a glimmer of sunlight through the dark clouds lowering over manufacturing. In short, the improvement in pundits' level of optimism over recent weeks suggests they were all suffering from seasonal affective depression. Now the days are getting longer, they are flocking to upgrade their forecasts for growth this year. This mood of good cheer rests on the assumption that the Bank of England will continue to make skillful use of the interest rate throttle to achieve the soft landing. This might or might not be correct. After its big catch-up last autumn, the MPC collectively probably feels it is now pretty close to the right level of rates.

We are in for another mood swing, however. Most of this year's growth will take place after June. So far the economy has been pretty subdued and it will probably stay so for the next couple of months. There was next to no increase in national output in the final quarter of last year. In the first quarter of this year retail sales have been flat, industrial output has been flat to falling and unemployment has started to creep up. For all the improvement in the surveys published yesterday, both were less weak rather than significantly stronger.

What's more, it is the weakness of the economy, not its gathering strength, that will prompt any further interest rate reductions. Weakness now is needed to generate the MPC-driven upturn economists are hoping for later.

Whether it will all wash out at zero growth in 1999 or 1 per cent or more still depends on events well outside the control of the Bank of England, however. The pilots might look as though they are about to land safely in calm and sunny weather, but the world climate could yet inflict a nasty storm.