If diplomacy is the art of not causing offence, the IMF's annual Article IV assessment of the UK economy is a master-class in diplomacy. It allows the government to say it is already doing the things the IMF recommends and the opposition to attack ministers for not doing enough of them.

The IMF report, coming on the day of a sharp weather-related 1.3% drop in retail sales in April, is an antidote to some of the recent growth optimism. It notes that the recovery remains weak by past standards, and that per capita GDP is still 6% below pre-crisis levels.

Most of its recommendations are familiar - bring forward infrastructure spending, do more to get credit flowing, and so on. Buit as it concedes:

"Policy remedies to restore growth and rebalance the economy are not straightforward. Monetary policy is at the zero bound; bank balance sheets are impaired; and public debt is rising, but the consolidation to address this is also a drag on growth. This implies the need for a coordinated multi-pronged strategy to guide the economy to greater and more balanced growth. Such a package would bring growth benefits not merely to the UK, but would also have positive spillovers to the rest of the world, especially those who trade most with the UK."

So press lots of small buttons, but don't expect miracles. There is no magic bullet. The report is here.

The other significant announcement today was a downward revision of 2012-13's public sector net borrowing to £119.5 billion, implying a bigger margin of reduction over the 2011-12 figure of £120.9 billion.

Inflation has been remarkably steady at 2.7% or 2.8% in recent months so the drop in April to 2.4% was a surprise, and a very welcome one. Lower petrol prices and air fares contributed most to the fall, which reduced inflation to its lowest since September.

As Sir Mervyn King prepares to hang up his governor's boots, inflation is now agonisingly close to target. It may head up a bit in the short-term, but not by enough to force Mark Carney, his successor, to have to write a public letter of explanation to the chancellor.

Other measures of consumer inflation also dropped. The new CPIH measure, including owner-occupiers' housing costs, had inflation down from 2.6% to 2.2%. RPI inflation fell from 3.3% to 2.9%, while RPIJ (don't ask) came down from 2.7% to 2.3%. More here.

There was also good news on so-called pipeline inflation pressures. Output prices rose by only 1.1% in the 12 months to April, down from 1.9% in March, while core output price inflation dropped from 1.3% to 0.8%. Input prices, fell by 0.1% over the 12 months to April - in March they were up 0.8%. More here.

The only price strength, interestingly, was in house prices, up 2.7% in the 12 months to March, from 1.9% in February, as detailed here.

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.