Leading Article: Will they survive the frost?

THE spectacle of shoppers tussling over post-Christmas bargains has prompted fresh speculation that the elusive green shoots of recovery may at last be poking through.

It is still, however, too early to call the turn. Having been incautiously optimistic on numerous occasions in the past two years, the Treasury is sensibly sticking to its formulation that 'conditions are in place for a sustained recovery', rather than claiming a revival to be under way. The Treasury does, however, argue that the 'missing ingredient' for recovery - greater confidence among businesses and consumers - appears to be returning. Perhaps, but the hectic start to the winter sales could merely be evidence that consumers have become more savvy in the hunt for bargains. When the sale stocks have cleared - and full-price spring ranges take their place - they may be less eager.

High-street spending has been edging up for much of 1992, but there is no sign yet of a sustainable surge, and it would be rash to conclude from the last three days that one is beginning. Even the improvement seen so far may be largely illusory, with consumers trading down from items such as restaurant meals, holidays and cars, which are outside the official retail sales measure.

Despite the money put back into home owners' pockets by the three-point cut in interest rates since September, there are good reasons for consumers to remain cautious. Many fear for their jobs; they are frightened by the continued rise in unemployment and talk of a tax-raising Budget does little to help. The reaction of many to lower rates will be to pay off debt faster rather than to spend.

That does not imply that further rate cuts are without value. Anything that assists people to restore their balance sheets brings recovery closer. Another interest rate reduction would also help the housing market. Estate agents may be reporting a busy December, but the expectation is for prices to continue falling well into 1993. Until prices at least stabilise, and people no longer feel their wealth being eroded, consumer confidence will remain at a low ebb.

Because consumers in Britain have had so much of the stuffing knocked out of them, we will have to rely on exports to an unusual extent to pull the economy out of recession. The fall in the pound since Black Wednesday helps by making British goods cheaper in overseas markets. However, although business confidence has risen from its autumn nadir, the size of the benefit that exporters derive from devaluation is still debatable. The impact of devaluation depends not only on whether exporters keep their costs under control, but also on whether recovery in the United States compensates for deepening recession in mainland Europe.

Such are the uncertainties that the case for a further easing remains powerful. Businesses as well as consumers would benefit, with rate cuts lowering their interest charges and making it cheaper to invest. A one-point reduction would have little, if any, impact on the pound, and might just protect the latest crop of green shoots from winter frost. Nor should the Chancellor forget that one of the great advantages of interest rates is their flexibility. Once the economy has moved back on to a sustainable growth path, they can be eased up again. The balance of risk is unambiguously on the side of another cut.