London Briefing: According to the Chartered Institute of Purchasing and Supply, Britain's manufacturing industry is now growing at its fastest rate in a decade, fuelled by a recent surge in capital investment both at home and overseas.
On the other hand, if we look at official data from the Office for National Statistics (ONS) we don't get quite such a rosy picture. In similar vein, if we take the house-price numbers produced by leading banks and building societies such as Nationwide and Halifax we find that the property market is still robust, to say the least. But talk to anyone trying to sell a flat virtually anywhere in London and you get the distinct impression that the property market has finally turned.
On the other hand, for the first time since the decline of the coal industry, property prices are rising in the Welsh valleys. How does the Bank of England make sense of all the conflicting evidence when deciding on interest rates?
One answer would be to devote more resources towards the proper collection of data. Would we get a much more accurate fix on the economy by spending more taxpayers' money on statistical gathering? And would that lead to a vast improvement in the setting of monetary policy? If we could be sure of positive answers to both questions, then any extra money spent by the statisticians would easily be justified, in a technical sense at least.
Politically, it would be like spending money on prison reform: the right thing to do but impossible to imagine there being any votes in it. It makes much more sense to most people to build an extra hospital than to improve the national accounts - but, ultimately, we might end up with more and better hospitals if we achieve better economic policies via improved data collection.
Right now, Tony Blair is so mistrusted he would have difficulty convincing people that Sunday usually follows Saturday; any attempt to justify the long-term benefits of increased spending on statistics would be greeted with derision.
As it happens, the Bank of England is making a pretty good fist of its brief, despite data that seem to point in opposite directions. The ultimate test of the success of any central bank is whether or not it achieves its central remit (always some definition of price stability) within a broader, always unwritten, political context. It is easy to stop inflation: simply keep on raising interest rates until prices stop going up. It is much harder to keep the economy ticking over, doing your bit for the unemployed while keeping inflation in check. At the very least, you need a lot of luck.
But you also need to appreciate that when you are told to achieve price stability, the politicians want lots of other things as well.
The US Federal Reserve worked this out a long time ago; it finally dawned on the Japanese central bank about a year or so ago; the European central bank will eventually get it, but not for a few years yet. From its first day of independence in 1997, the Bank of England has got this message and, data problems notwithstanding, is doing an excellent job.
A big judgment call lies ahead. Anecdotal evidence that the property market is cooling, combined with persistently high oil prices (these will slow growth rather than cause inflation), might suggest that enough has been done on the interest rate front. Sterling continues to be relatively strong, which also points to monetary caution. But there are plenty of other indicators that suggest the economy is continuing to grow strongly, with one or two signs of incipient inflation pressures.
Another rate rise looks certain tomorrow: a recent Reuters poll of 45 economists found 44 predicting a rate hike. Many of those analysts also expect several more rate rises over the next few months.
It is not inconceivable that UK interest rates could end up being three times higher than their Euro counterparts. That ratio has already been achieved with respect to US interest rates. Ultimately, high UK rates rest on ONS data, dodgy or not, that says British productivity growth is relatively low: because of this, output cannot grow at its recent pace for much longer without generating inflation.
Alan Greenspan was willing to bet that the consensus was wrong and that US productivity growth was such that he could drive interest rates lower for longer than almost anybody else thought sensible.
His UK counterpart, Mervyn King, is as likely to repeat that experiment as he is likely to get better quality data from the ONS.
