The rosy outlook presented by British Chancellor of the Exchequer, Mr Gordon Brown, on Budget day earlier this week appears well underpinned. The chancellor has good reason to feel pleased with himself. While there is still a possibility that Britain will slip briefly into recession later this year, it now looks set to achieve a soft landing.
One of the main reasons for the outlook being more upbeat than many would have thought possible at the beginning of this year is the newly-won independence of the Bank of England and the Monetary Policy Committee's (MPC) cuts in interest rates which began far earlier in the economic cycle than on many previous occasions.
Mr Brown has made it clear that the MPC should worry about the short-term direction of the economy while he concentrates on making more fundamental improvements aimed at boosting productivity - a policy that many previous chancellors would not have had the stomach for.
Of course it is still true that the economic environment has deteriorated rather drastically since Mr Brown presented his last budget in April 1998.
At that time, there was even talk of overheating in the economy. But the strength of sterling since then has combined with global weakness and previous high levels of interest rates to slow growth sharply.
Britain will probably fall into recession as growth will fall for two consecutive quarters. However, compared with the last major recession in the late 1980s, and indeed the previous one in the early 1980s, company balance sheets and the trade balance are in better shape. On top of that consumers are not nearly as pessimistic and large-scale job losses are not thought likely.
As HSBC economist, Mr Adam Cole, points out, if the international environment does not take another significant turn for the worse and consumers respond to cheaper money, then a soft landing is very much in prospect.
But there are still some worrying signs. Up to now the badly hit exports sector has been balanced by the robust services sector.
However, there are now signs that a slowdown in services output is on the way, suggesting that the weakness in the export sector is now beginning to feed through to the services sector.
The rapid cuts in interest rates - with almost monthly announcements over the past six months - have helped to lift sentiment somewhat. Interest rates have now dropped by 2 percentage points from their peak of 7.5 per cent and many believe that they are set to go lower. Each cut has been explained by some piece of "news". But according to commentators such as Mr Cole this is more to cover up the fact that they may have risen too high in the first place - and that the MPC now realises this. It is almost certainly true that the last rise was a mistake, taken as it was on the back of a large increase in average earnings which later proved illusory.
The MPC now seems to be focusing on a new concept of "neutral" interest rates and this is thought to lie between 5.25 per cent and 5.75 per cent, implying that rates are now in the right position in the middle of this target range. The neutral rate is meant to be the ideal, neither too restrictive nor a source of over-stimulation of the economy.
However, some members of the MPC are thought to believe that rates may fall below their neutral position as the economy moves into a recession. Nevertheless it is likely that further cuts will rest on the latest news. The very fact that there was no reduction after last week's meeting - for the first time in many months - points to the fact that the committee wanted to see exactly how stimulative the budget would be before deciding on whether to deliver a further boost or not. And the £4 billion of tax cuts delivered by it is about equivalent to a half percentage point off interest rates.
Of course how quick the recovery will arrive depends very much on how consumers and industry react to cheaper money and generous tax cuts. Consumers have mostly remained optimistic, although there was a slowdown in retail sales at the end of last year. Many commentators are now putting this down to a reaction to media headlines about a looming recession rather than an inability to spend because of falling wages or other reasons.
The most recent MORI opinion poll has indicated far greater optimism although this could yet be diminished by rising unemployment and slowing wage growth. But it is still quite possible that consumer spending will keep on an upward trajectory.
The story is very different for industry and, in particular, for exporters.
The strength of sterling has long been a bone of contention for much of Britain's exporting base. At the moment many are pinning their hopes on a reduction in its value based on entry to the euro. However, that is still some years off and at the very least the interest rate differential between Britain and the euro zone will keep sterling supported in the meantime.
But if consumers do respond positively and the international environment does not worsen considerably then at least they will not be staring a full blown recession in the face.
