Europe and oil prices will settle our recovery chances

The thing about economic recoveries is that they never feel like recoveries until the turning point is long past. That is because any national economy is a huge and complicated endeavour.

So even in a boom there will be sectors and regions that are finding it tough, and even in a slump there will be pockets of growth. If the pluses outnumber the minuses that is growth; if they don't that is recession.

The flip between the two is always hard to measure and the data is invariably revised, sometimes years after the event.

So the best way to catch a feeling for what is really happening is to focus on the hard numbers that tell us about different chunks of the economy: what people are doing, not what they say. One such figure is the VAT revenue, because it is levied on half of all consumer spending. That is running three per cent up year-on-year. Since inflation is up 2.5 per cent, that suggests 0.5 per cent of real growth, something but not much.

The job figures are rather better, for the private sector seems to be creating two jobs for every one lost in the public sector. Here the hard number comes in the form of national insurance contributions, running up 5 per cent on last year.

There are, however, other numbers which are not so good, including exports to Europe, and income and corporation tax receipts. Partly as a result of these tax shortfalls, the Government's overall finances have deteriorated sharply.

There are two pitfalls ahead: further weakness in Europe and uncertain oil prices. But there is also a reasonable possibility that inflation will fall below 2.5 per cent. If it drops below two per cent and earnings continue to rise at about that rate, real incomes will start to rise. The squeeze will ease – and many will feel not before time.