My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

The CBI, the employers’ organisation, says Britain’s economy is “moving from flat to growth”. The Paris-based Organisation for Economic Co-operation and Development says its latest leading indicators point to growth in Britain at “close to trend rates”.

Most of all, Sir Mervyn King, presenting his final inflation report as governor, concluded his 82nd such press conference (he used to do them when he was chief economist and deputy governor), with the nearest thing to a hop, skip and a jump we have seen for a long time.

As he put it: “Today’s projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago. This is the first time I have been able to say that since before the financial crisis.”

The Bank’s forecast is for “a modest and sustained recovery over the next three years”. Partly this is because some factors dragging growth down over the past 2-3 years - sharply falling North Sea and construction output - will cease to be a drag.

But mainly it is because it thinks more than four years of 0.5% Bank rate and £375bn of quantitative easing, together with better credit conditions as a result of the Funding for Lending scheme, and an improving global economic environment, will gradually strengthen the recovery. The upturn will remain weak by past standards, because of the hangover from the banking crisis. But an upturn it will be.

Today was unusual in two respects. The first was that it was Sir Mervyn King's last inflation report press conference, after more than 80, ahead of his retirement next month. The second was that the Bank's new forecast is slightly more upbeat than the one issued three months ago, which according to him is the first time this has happened since before the global financial crisis.

There is lots of good detail in the report. So, for example, the Bank expects a 0.5% rise in GDP in the second quarter, a steady recovery in consumer spending, a pick-up in business investment, a small increase in employment over the coming year and an increase in mortgage approvals. These and other assumptions/expectations are set out in a new feature of today's report, intended to show greater transparency, on p.42.

King said the biggest risks to the UK economy were external, particularly the eurozone, where today's Q1 GDP figures were mixed but overall on the weak side. However, the big picture, according to the report, is that: "Taking those risks into account, the [Monetary Policy] Committee’s best collective judgement is that the economy is likely to see a modest and sustained recovery over the next three years."

Inflation will come down gradually to the 2% target, but will remain above it for most of the next two years. It needs to, given that pay growth in the year to the first quarter was just 0.4%. The Bank noted that the markets do not expect a rate hike until 2016. The inflation report is here.

How do we square the Bank's cautious optimism with the latest labour market numbers, which as well as weak pay growth showed a rise in unemployment and a fall in employment? The short answer is that, while these figures were not strong, they were not particularly weak either.

Unemployment rose by 15,000 in January-March to 2.52m (a lower level than reported a month ago for December-February). The unemployment rate was 7.8%. Employment fell by 43,000 to 29.71m, though this appears to reflect particular weakness at the start of the quarter. The claimant count fell by 7,300 to 1.52m. The big picture is that the really strong rise in employment has abated, but that the job market has not gone into reverse. More here.

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Spring has sprung with a vengeance for stock market investors. In recent days we have seen the Dow Jones industrial average close above 15,000 for the first time, Germany’s Dax hit record levels and the MSCI world equity index reaching its highest level since before the worst of the global financial crisis in 2008.

Even the FTSE 100 has been joining the party, trading comfortably above 6,500 and within sight, though not for the first time, of its all-time high of 6,930, reached as long ago as December 1999.

What lies behind this outbreak of stock market optimism and is it a harbinger of better economic news to come, or just a flash in the pan? Are markets, as some suggest, divorced from economic reality? A strong German stock market is, on the face of it, hard to square with an ongoing eurozone crisis and a European Commission forecast of continuing recession this year.

Stock market strength coincides with some evidence that, partly as a result of the eurozone’s woes, world growth is slowing. The April J.P.Morgan/Markit global purchasing managers’ index (PMI) dropped from 53 to 51.9 in April, signalling that while upturn was continuing, it was at its slowest rate sionce October last year.

Some economic news, it should be said, is consistent with market optimism. Investors were cheered by the 165,000 April rise in America’s non-farm payroll employment and a drop in the unemployment rate to 7.5%. Strong March German industrial production and manufacturing orders encouraged the view that its economy is riding out the eurozone recession.

Britain's overall trade deficit narrowed to £3.1 billion in March, from £3.4 billion in February (originally reported at £3.6 billion). The value of exports increased by 3.5% between February and March, while imports rose by 2.6%. Britain's EU trade deficit widened to £5.6 billion from £5 billion, while the non-EU deficit narrowed from £4.2 billion to £3.5 billion.

The performance of non-EU trade, discussed by me last Sunday, is particularly interesting. The volume of non-EU exports has risen by 36% since 2009, the trough of the recession, while the volume of exports to the EU is up by 5%. But there is a long way to go. The trend in the trade deficit is flat. More here.

The Bank of England left monetary policy unchanged at its May meeting, as expected, Bank rate remaining at 0.5% and the size of the asset purchase programme at £375 billion. No statement was issued, though the Bank will publish its quarterly inflation report on Wednesday May 15.

Assuming Sir Mervyn King continued to vote for more quantitative easing, he appears to have been outvoted again, which may also be the case next month, his final monetary policy committee meeting as governor.

The majority on the committee looks to have been persuaded to stay its hand by two factors. Members are waiting on the success of the Funding for Lending scheme, and recent economic data has been stronger than expected, including the 0.3% rise in first quarter gross domestic product.

Industrial production figures today showed a 0.7% rise in overall industrial production in March, and a welcome 1.1% bounce in manufacturing. The 0.2% first quarter rise in industrial production was consistent with the GDP figure. More here.

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

On Thursday the European Central Bank (ECB) cut its official interest rate from 0.75% to 0.5%, its president Mario Draghi citing the fifth successive quarterly decline in gross domestic product (the eurozone has only escaped a triple-dip because it is still in a double-dip) and very weak economic sentiment.

Economic weakness has spread from the periphery to “core” economies such as Germany, France and the Netherlands, which had been doing much better. While the ECB expects an improvement in the eurozone economy later in the year, it warns that the risks are on the downside.

The English Channel is not that wide but it seems some clear blue water is opening up between Britain and the eurozone. It has been there for some time when it comes to unemployment. Eurozone unemployment, at 12.1%, is more than half as much again as Britain’s 7.9% rate. Youth unemployment, which ranges as high as 59% in Greece and 56% in Spain, is also significantly higher on average.

Britain’s growth performance, while nothing to write home about, is also beginning to pull away from the eurozone. The latest forecast from the National Institute of Economic and Social Research is for another year of recession in the eurozone, with gross domestic product contracting by 0.4% after a 0.5% fall last year. It predicts that Britain will grow by 0.9% following last year’s 0.3% rise. Next year it expects 0.9% growth in the eurozone but 1.5% in Britain.

Following its most recent quarterly gathering, held at the Institute of Economic Affairs (IEA) on 16th April, the Shadow Monetary Policy Committee (SMPC) decided by six votes to three that Bank Rate should be raised on Thursday 9th May. Five SMPC members wanting an increase of ½%, another voted for a ¼% increase, and three voted to hold Bank Rate.

This vote distribution implies a ½% increase on normal Bank of England voting procedures. The recommendation of a rate rise in May represented the fourth consecutive month that a majority of the SMPC had voted in favour of higher interest rates. However, it was the first time for several years that a majority of the shadow committee had recommended an increase of ½% rather than ¼%.

While the SMPC has recommended a more hawkish stance than the official rate setters recently, there has always been a SMPC minority who wished to freeze rates until there were clear signs of recovery. The SMPC was also more hawkish than the official rate setters during the credit bubble that preceded the 2007 and 2008 financial crash. It is hard to argue, with hindsight, that the Bank of England was justified in ignoring the signs that the Heath-Barber and Lawson credit booms were being repeated in the earlier 2000s.

There appear to be three main intellectual differences between the majority view on the SMPC and the official one. These are: 1) the extent to which weak growth is a supply-side phenomenon, rather than a demand-side one; 2) how far misguided financial regulation has led to a damaging restriction in the supplies of money and credit, and 3) whether Quantitative Easing (QE) has been exhausted as a stimulus or, alternatively, should be re-directed towards private sector debt.

The service sector purchasing managers' index completed a trio of better than expected surveys, and suggested the economy had some momentum going into the second quarter after the 0.3% first quarter rise in gross domestic product (which was also better than expected).

The service sector PMI rose to an eight-month high of 52.9 in April, from 52.4 in March. According to Markit, which complies the data: "The steady improvement in UK service sector performance seen since the start of the year was maintained in April. Growth of business activity was solid and the sharpest for eight months, supported by the strongest rise in new work since last May. A modest increase in staffing levels was also recorded as capacity showed signs of coming under pressure."

The services PMI supports the message of the first quarter, which was that it is the sector driving the recovery. Both the construction and manufacturing PMIs also rose but remained below the 50 expansion-contraction divide. But the strength of services probably rules out an extension of quantitative easing when the Bank of England's monetary policy committee meets next week.

This is Markit's summary of the three PMIs: "The upturn is being led by the service sector, but it has been accompanied by signs of activity stabilising in manufacturing and construction in April. The weighted PMI from the three surveys rose from 51.0 in March to 52.1, its highest since last August and signalling an increase in business activity for the fourth month running. The data suggest that the return to growth enjoyed by the economy in the first quarter persisted and may have gained momentum at the start of the second quarter." The release is here.