Outlook: A soft landing is not the only possibility

THE MESSAGE from the Monetary Policy Committee yesterday, in its members' evidence to the Treasury Committee, was that all of them, hawks and doves alike, are chirping along to the same hymn book. The MPC still needs to work on its harmony, but the underlying tune is unmistakable - that the economy is heading for a soft landing. Growth will slow, but not too far. Inflation is heading for higher ground two year down the line but it won't be too far from target. The squawks about whether or not to raise interest rates by another quarter point are a small matter in comparison with the underlying consensus.

In favour of this upbeat version of events offered by Messrs Buiter, George, Goodhart and King is the fact that most economists agree the economy is not heading for recession. Even the forecasters who are gloomiest about the risk of recession, such as the National Institute of Economic and Social Research, put the odds at only around one in four. And even the fiercest of inflation hawks - step forward City economist Richard Jeffrey at Charterhouse - does not expect target inflation to climb past the 3.5 per cent that would force the Governor to write an explanatory letter to the Chancellor.

If nine out of 10 economists believe the economy is in for a soft landing, it must be true - mustn't it? Only up to a point. Members of the MPC's two competing flocks would not bother holding out on their vote month after month if they were really as close as they make out. The firm hawks must have reckoned there is still a genuine inflation risk even though the economy is coming off the boil. They worry about rising earnings growth, record levels of personal sector financial wealth, the rapid expansion of credit and a number of other indicators of strong home demand.

On the other hand, the doves are able to cite equally compelling signs of a marked slowdown to come. Exports, manufacturing, a weaker trend in retail sales, all show the economy slowing from the unsustainable pace it set in the middle of last year. It is certainly not beyond the bounds of possibility that the strong pound will turn out to have a far more devastating impact on industry, perhaps bad enough to topple the rest of the economy into recession.

The MPC can protest all it likes that its members' views are very close but in point of face what they actually do is point in opposite directions. The soft landing outcome still seems the most likely but don't yet discount the other two less rosy possibilities - recession or runaway boom.