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There's some striking information about the cash value of the economy buried in - which may come as mixed news to the Bank of England - and the Treasury.

The figures show nominal GDP growing by 1.1% between the third and fourth quarter of 2009. It grew 0.8% in the third quarter. If that continued, we'd be looking at annual growth in cash GDP of more than 4%.

In many ways, that's good news. The whole point of the Bank of England's quantitative easing policy - pumping money into the economy - was to boost growth in nominal spending and demand. These figures suggest it has achieved that.

But, as we know, there wasn't very much real growth in the economy during that period. The growth in nominal GDP was achieved almost entirely through higher prices.

Neville Hill, an economist at Credit Suisse, calculates that the annualised change in domestic prices in the second half of last year was 4%. Put it another way: in the second half of last year, domestically-generated inflation was running at an annual rate of 4% - well above the Bank's target and the current CPI measure of inflation.

Today's figures also show economy-wide wages and profits growing at an annualised rate of 6%. For some in the City, that suggests that inflation will rise further in the months to come.

In 'normal' times, economists like to see nominal GDP grow by about 4.5%, with growth of 2.5% and inflation close to the 2% target. But 4% growth in nominal GDP, with very little growth in the level of real output, is not something you want to see for very long.

From the Treasury's standpoint, it's much better to have some growth in the cash value of the economy than none - even if it happens on the back of weak growth.

The very slow growth of nominal GDP during the recession was one of the reasons why the UK's debt and borrowing numbers deteriorated as quickly as they did: the cash value of borrowing and debt was going up, while the cash value of the economy (the denominator) was hardly going up at all. Faster growth in nominal GDP also boosts tax revenues, and reduces real growth in public spending (assuming the nominal level of spending is fixed).

But neither the Treasury nor the Bank will want to see this pattern of low growth and relatively high inflation continue. We can't afford to see a lasting change in the trade-off between the two.

Unfortunately, as David Miles, now on the Monetary Policy Committee, , low growth and relatively higher inflation are the combination that the Bank of England thinks most likely, if its fairly benign forecast for the future path of the economy turns out to be wrong.

In its Inflation Report forecasts, the Bank likes to show a spectrum of possible outcomes - weighted by probability - rather than a single point estimate. (If you didn't know this, it's because we journalists tend to talk about the middle point of the spectrum as if it is a forecast, however often its economists tell us not to.)

At the moment, the growth forecast is unusually skewed to the downside: in other words, the Bank thinks growth is much more likely to come in below its central "best guess" than above it. Whereas the inflation forecast has the greatest upwards skew the MPC has ever seen: the inflation risks are largely on the upside.

It's not time to panic just yet. As I said, it's better to have some growth in cash GDP than none. The major point is that the economy is growing, and QE may well have helped sustain the level of nominal demand in the economy.

But the figures should also remind us that there's plenty that could still go wrong - for growth, and for inflation.

Update 1817:A number of correspondents have suggested that today's figures are being misrepresented, because the overall level of national output at the end of 2009 has actually been revised down.

I think this is an important point - made harder to spot by the fact that the ONS's own press release today declares: "Services growth in December pushes up GDP estimate." Taken literally, that is somewhat misleading.

Why? Because, as I noted in my first brief comments on today's numbers, downward revisions to previous quarters - notably the third quarter of 2009 - mean that the recession is now thought to have been deeper than previously thought, with a loss of 6.2% of GDP, not 6%.

A logical implication - which I should have spelled out - is that the level of GDP at the end of 2009 has been revised slightly down, even as the growth rate has been revised up. Indeed, it is largely because the economy started the quarter smaller, that the recorded growth rate after that has been revised up.

However, if one is concerned about the forward momentum of the economy coming out of recession, I would argue that the growth figure is more relevant than the level.

The economists who thought the economy was growing more quickly than 0.1% in the final quarter, were right. Even if we were starting from a lower base.

Bottom line? The hole was deeper than we thought - but we have at least been climbing out of it a bit faster than we thought. Hardly a resounding note of optimism with which to start the weekend. But this is not a story that has had anyone cracking open the champagne.

will be seen as a vindication of the city analysts who thought the economy in the last months of 2009 was stronger than the official statistics implied. The figures also show the economy coming out of a recession at a similar pace to many Eurozone economies - albeit later.

However, Germany didn't grow at all in the last three months of 2009, after two quarters of solid growth. We can't rule out a weak growth figure for the UK in the first quarter of 2010, especially if the temporary VAT cut encouraged people to make purchases in late 2009 that they would otherwise have been making now.

The big picture is that we are still looking at a weak and fragile recovery, after a recession which now looks to have been slightly deeper than we thought. Thanks to downward revisions to growth in earlier quarters, the economy is now thought to have shrunk by 6.2% during the recession, not 6% as previously thought.

Also, the expenditure figures show all the strength coming from household spending. Both investment and net trade took away from growth - not an encouraging sign for the future.

Usually politicians wait to be in power before laying out their vision in the annual Mais Lecture at Cass Business School. Geoffrey Howe did it in 1981. Lord Lawson in 1984. Gordon Brown in 1999.

Tony Blair was the great exception - he was invited in 1995. Last night it was George Osborne who decided to tempt fate, playing the chancellor-in-waiting with his vision of economic policy if he wins No 11.

Some will detect the whiff of hubris. But there are plenty in the city who call him a lightweight. This speech was supposed to shut them up.

It probably won't, though, as you can see in my piece for the television bulletins tonight, the city economists and grandees I spoke to afterwards seemed pleasantly surprised.

However, this lecture might quiet those who say the Conservatives are about austerity for austerity's sake.

There wasn't much new policy. We heard a bit more about the independent Office of Budget Responsibility, and a commitment to a full "audit" of the public finances, before the first budget, within weeks of a Conservative victory.

Incidentally, the need for that great "opening of the books" - with all the appropriate gasps of horror- means the party won't be able to provide much more detail of its spending plans until after the election. Shame.

Labour and the Liberal Democrats were already criticising the lack of detail before Osborne stood up. But the speech did add intellectual fibre to the slogans, and give a further sense of what Chancellor Osborne's priorities would be.

You can summarise it in three words: It's Mostly Fiscal.

Yes, Osborne talked about monetary and financial policy in his speech: there was a promise not to let Britain inflate its way out of trouble; talk of tweaking the inflation target to take account of housing costs; and a restatement of the case for putting the Bank of England in charge of more nuanced macro and micro prudential regulation of the financial sector.

He also talked about "where the growth would come from" under a Conservative government, re-stating his eight benchmarks for measuring its economic success. But that was the shortest part of the speech. Also the weakest.

And even then, talking about the supply side, and boosting private investment, Mr Osborne could not help talking about the need to raise public sector productivity through a "radical programme of public sector reform".

The beating intellectual heart of the speech was the Osborne's desire to make the strongest - most unapologetic - case he could for tackling the deficit as soon as possible.

Regardless of what you think about the merits of his argument, he made it well.

If you think the Conservatives are right about cutting the deficit as quickly as possible, but you're having trouble convincing your friends - you should read this speech.

If you think that Conservative talk of austerity is all about cutting the government down to size, with little thought for the health of the recovery - you should also read it.

The case for cuts that is given in this speech is more nuanced than that given in the economists' letter in the Sunday Times. It is certainly more thoughtful than anything we've heard previously on this subject from the shadow chancellor.

It is also, largely, an argument about what will best support a vigorous private sector recovery in the next few years (though of course he wants to change the way government works as well).

You might still vigorously disagree with him - and many economists will. But you can't say he hasn't thought about it. Or considered the implications for growth.

People who think that Mr Osborne is over-doing the risks of inaction will quibble with his claim that higher gilt yields show Britain's declining fiscal credibility.

He notes that the spread between ten year gilts and German bunds is now 90 basis points, "compared to 70 basis points for Spain and 110 basis points for Portugal".

But there's a lot going on in that gap: like the fact that we have higher inflation than they do. Also, investors might be expecting faster growth in the UK than in Spain in Portugal, meaning higher medium-term interest rates.

The spreads on sovereign Credit Default Swaps (CDS) - loosely, the cost of insuring against a sovereign default - are a better, albeit imperfect guide to investors' worries. On that measure, the five year spread for the UK is 88 basis points, versus 44 for Germany.

That's not great, but it compares with nearly 170 basis points for Portugal and 127 basis points for Spain.

Of course, you could argue that investors simply think that we will inflate away our debt - making formal default less likely than these other economies who lack that way out. The point is that these market signals are more complicated than they look.

Critics might also say Mr Osborne was under-stating the importance of economic growth in sustaining market confidence.

In his speech he said that people who worried that private demand was too weak to take the place of public spending failed to ask why private demand was weak, and underestimated the role of confidence in supporting growth.

That could be right. But it's also true that, if demand doesn't materialise, sooner or later the markets will punish you for having bleak economic prospects as well.

It is, indeed, all in the timing. And no-one - on either side of this debate - knows what the right timing will turn out to be.

Finally, there is that big hole at the centre of the argument, where the numbers have to go.

However rigorous the argument for early cuts, you're still left wondering, as a practical matter, how George Osborne could make cuts that were large enough to impress the markets - yet small enough to keep the recovery on track.

Even if he could cut a swathe through Whitehall in a matter of weeks (which he can't), Mr Osborne admits there isn't much room for monetary policy to take up the slack.

That will be the unending debate of the next few weeks and months. What you can say tonight about the shadow chancellor is that he has set out his intellectual stall.

The most important risk hanging over the UK is not the scale of government borrowing: it is the pace of the recovery.

That was one important message that Mervyn King wanted to get across to the Treasury Select Committee this morning.

You might find this surprising, given the fevered debate of the past weeks over when and how to cut borrowing.

Hasn't Mervyn King played his own part in the debate - on occasion - insisting that the chancellor needed a "clear and credible plan" for bringing the structural deficit down?

The answer is yes. He wants the deficit to be high on the to-do list of the next government. And before that, he wants to see a "clear and credible plan" for cutting borrowing from the chancellor, in next month's Budget.

It's fun - I suppose - to ponder what, exactly, the governor means by a clear and credible plan, and how it would differ from the plan laid down in the pre-Budget report. He wants a "large part" of the structural deficit removed by the end of the Parliament.

So, is "half" a large part? If you took half of my dinner I would consider that a large part. But others say "a large part" actually means "nearly all".

Mervyn King didn't add light to this somewhat idiotic debate this morning. He talked about needing to have a plan to "bring down" the structural deficit in the lifetime of the Parliament.

The larger point is that the most credible plan you could imagine could still fail to cut borrowing, if the economy does not recover.

On the basis of his testimony - and that of other members of the Monetary Policy Committee (MPC) - it is the state of the recovery that is clearly their major concern.

We heard several times that "risks to the Committee's central view of a gradual recovery of output remain to the downside". Subtitle: we're not out of the woods yet.

Britain's banks, households and government all need to get their balance sheets in order over the next few years, and bring down their stock of debt. That has long been a reason to expect a weak recovery.

But, as King and his colleagues noted, the weakness of the recovery in the eurozone gives us another one.

Euro-sceptics may have been tempted to take some pleasure out of the travails of the euroland economies like Greece or Spain, who will struggle to regain their competitiveness without the option to devalue. But the state of our economy affords little room for schadenfreude.

The eurozone is by far our biggest trading partner: bad economic news in the eurozone is bad news for us as well.

We learned the other day that euro-zone GDP growth in the last three months of 2009 is estimated to have risen by just 0.1%, down from 0.4% in the previous quarter.

Germany seems to have had no growth at all, the Italian economy shrank by another 0.2%, and Spain by 0.1%.

Between them, those three countries accounted for 15% of UK exports in 2008. Exports to the eurozone accounted for about half.

As the deputy governor, Charlie Bean, pointed out, we haven't seen much of a bump to exports as a result of the unprecedented fall in the value of the pound in 2008/09.

That is partly because exporters have used the depreciation to earn bigger margins on the goods they sell abroad - rather than cut prices in foreign markets to boost sales.

This will come as no surprise to anyone who had studied the behaviour of the UK economy over the past 50 years: it's what our exporters always do. In an environment of collapsing domestic demand, it may also have been a handy way for such companies to preserve their cash flow.

But, even if we've learned to expect it, it's striking that UK export prices have fallen by little more than 10% relative to the sterling price of exports from other countries since the middle of 2007.

On a trade-weighted basis, the exchange rate has moved by 25% in that time. That's a lot of extra margin.

In theory, this needn't be a problem: if exporters are earning higher profits, that in itself should encourage those companies to invest and expand - and attract others to the sector. But that is unlikely to happen if the recovery in Europe disappoints.

Yes, the Brics () are growing at a fair clip - and so are our exports to those countries.

British exports to China were 53% higher last month than in January 2009. But they start from a very, very low base: just 2% of our exports went to China in 2008.

In total, about 12% went to the Brics - with about 75% going to advanced economies, primarily the the US and the EU.

Solid growth in Europe is a necessary condition for a healthy recovery in the UK. So the latest weak numbers from across the channel have given the MPC one more reason to keep the door to further quantitative easing wide open.

Our brightest economists are lapsing into self-parody. - opposing the .

It would be funny. Let's face it, it is funny: once again, economists playing up the stereotype that they can never agree. Except, they do agree.

On this most important economic challenge facing the UK in the next five years, the people who signed these letters more or less agree. So do Britain's major political parties.

In the lead-up to a general election, we expect politicians to exaggerate the differences between themselves for rhetorical effect. But economists are supposed to be different.

By following a script largely written by politicians and headline-writers, the writers of these letters are in danger of writing themselves out of a job.

Here are the facts. This year and next, Britain will have a deficit in the region of 14% of GDP - a peacetime record. By March 2011 - its net debt will probably have risen to around 65% of GDP.

On the broader ("Maastricht") definition of gross debt used for comparing EU countries, our debt will be about 82%.

Those figures are rising fast: in 2008-9, net debt was 44%, and gross debt was just over 55%. But that 82% gross debt ratio in 2010/11 compares with an average forecast across the EU of 85%.

With debt this high, we're losing what economists would call fiscal "headroom", the space to respond to further bumps along the road. We've also moved from having below-average debt, to the average, with every chance of moving in the above-average group. But - as I argued last week - we're not Greek Britain yet.

Looking at our fiscal position, here's where - nearly - everybody seems to agree:

First, we don't have room for further discretionary stimulus this year.

If you were coming to the debate for the first time you might find this surprising. After all, according to the IMF, the average G20 country is implementing additional stimulus worth about 1.6% of GDP in 2010/11.

In that group, only Argentina has yet to announce any further measures for this year. But with that towering deficit figure, even the likes of Lord Skidelsky (who wrote the more aggressive letter to the FT today) does not seem to believe we can afford another boost.

Second, they seem to agree that it is appropriate to start tightening policy in 2010-11 - as the government is doing. If you earn more than £100,000, your taxes are going up in April. VAT has already gone back up to 17.5%.

According to the IFS, the tax rises and other measures announced by the government since the 2009 pre-Budget report will have the effect of tightening policy by 1.6% of GDP.

Net borrowing will fall by much less than that - by 0.6% of GDP, on the government's forecast. But that is because the state of the economy will continue to push up cyclical borrowing in 2010/11.

Third, all the letter-writers agree that there needs to be "much more detail" on the plan to cut the deficit after 2011-12, and "a radical plan for the medium term".

I take the quote from the first letter to the FT this morning - but there was similar language in the letter to the Sunday Times.

Where is the disagreement? Between the parties, the disagreement amounts to around 1% of GDP: additional spending cuts or tax rises adding up to around £15bn by 2015-16.

This is the difference between the Chancellor's current deficit reduction plan and the presumed Conservatives' target of eliminating the structural current budget deficit.

Between the economists, the disagreement about the medium-term may be larger. But that is not the area they have chosen to focus on in today's letters.

Their focus, rather, is on the risks of a "sharp shock" in fiscal policy in 2010, beyond the "shock" that is already in train (which is going to be pretty shocking for very high earners).

Is there a risk of a "sharp shock" in policy in 2010? I'm not sure I can see it.

In fact, I cannot think of any serious participant in the UK debate who has openly called for "swingeing cuts" in borrowing in 2010/11. It is a straw man.

Even the signatories to the Sunday Times letter suggest that the timing of cuts should be sensitive to the pace of recovery. The Conservatives have (now) said the same thing.

By writing their letters this morning, these economists have played into the hands of Labour ministers, who want everyone to be scared of Conservatives bearing axes. The Tories, for their part, took great pleasure out of the epistle to the Sunday Times.

But, as the director of the IFS Robert Chote has suggested, the kind of additional cuts that the Conservatives have discussed for 2010-11 - on the order of a few billion pounds - look too small, either to endanger the recovery or wow the financial markets.

If the economy grows even slower than anticipated this year, greater cyclical borrowing would more than offset that additional 'prudence'.

Of course, George Osborne will want to be bolder, if he wins Number 11. But if growth continues to be fragile, I see very little sign that an incoming Conservative government would want to take the blame for ruining the recovery.

I asked one of today's letter-writers whether they felt the debate would be enhanced by exaggerating the differences of opinion that exist on this crucial issue of public concern. His reply, in so many words, was "they started it". I rest my case.

How old are you - and do you work in the private or public sector?

Answer me these two questions, and there's a fair bet I can tell you the kind of recession you've had.

point up two great divides in the labour market experience of British workers in this recession. With few exceptions, this has been a private sector recession - and a recession of the young.

For the sake of the public finances, and our broader society, the balance needs to be reversed in the recovery.

The public-private divide is much discussed, and is probably already starting to reverse itself. As I've written in the past, public sector employment has actually grown during the recession, and so have public sector wages.

That is not unwelcome - in fact, it's what we mean we say that the "automatic stabilisers" are sustaining demand. Broadly speaking, we "want" the public sector to be counter-cyclical. But it has opened up quite a divide.

Today's numbers are typical. In the private sector, average total pay (including bonuses) did not grow at all between the last quarter of 2008 and the last quarter of 2009. In the public sector, average total pay has risen by 3.7%.

As I warned yesterday, that last number is being distorted upwards by all those bankers who are now counted in the public sector. Excluding them, the average pay rise in the public sector was 2.6%.

But that still means the average pay packet in the public sector has risen slightly in real terms, in the past year. In the private sector - it's fallen by 2.2% (the average rate of inflation in 2009).

According to the latest CIPD/KPMG quarterly labour-market survey, both the employment and the wage story are already changing.

This found that public sector employers expected to cut workers in the next few months - whereas many private sector companies were looking to take people on.

And they predicted the next private sector pay award would be around 2%, compared to 0.9% in the public sector.

It's safe to predict that the recovery will be less kind to the public sector than the recession was.

But it's hard to make such a clear prediction regarding young people. Everyone is always saying "the recession has been hardest on the young". But the numbers tell the story better than rhetoric.

Relative to the scale of the downturn, the rise in inactivity in the past two years has not been as bad as in past recessions.

At 21.3%, the inactivity rate today is now lower than it was in the early 1980s. What has changed is the age distribution.

There are many students included in the inactivity numbers - they were largely responsible for this latest rise.

But of the 16-17-year-olds not in full-time education, nearly 41% were economically inactive during the last quarter of 2009. Back in 1992, the figure was less than 15%.

Because this can include people in part-time work or training, this is not quite the same as the so-called NEETs - not in employment, education or training. But it is deeply troubling nonetheless.

If you want an even clearer picture of how the labour market experience of young people has changed, consider the following astonishing fact.

In the second quarter of 1992, two-thirds - 65% - of 16-17-year-olds who were not in full-time education were reported to have a job. Now the figure is 35%.

The numbers are better for 18-24-year-olds who are not in full-time education - 69% of that group were classified as employed in the last three months of 2009. In the early 1990s it was around 71%.

But this group had a 77% employment rate in 2004. It's been falling more or less ever since. The new figures show employment among the under-25s falling by more than 80,000 during the three months to October.

Every labour-market expert I know is deeply concerned by these figures - especially those falling employment rates for 16-17-year-olds, which could have an impact on their social and economic prospects for decades to come.

I don't hear of many easy solutions - let alone cheap ones. But when it comes to this particular labour-market divide, let's hope that the next parliament will be a time for bright ideas as well as tough choices.

is disappointing but not a shock - the big surprise was the previous two months of declines, while the economy was still technically in recession.

With the recovery still so uncertain, the best bet is for further rises in the jobless total in the next few months. But on the basis of these figures, we can still expect unemployment to peak earlier - and somewhat lower - than many would have expected a year ago.

Once again, rising part-time employment over the last three months of 2009 has partly offset a 37,000 fall in the number employed full-time. But we can draw some comfort from the fact that this decline in full-time employment is the smallest since the recession began.

More letters today - this time between the Bank of England governor and the chancellor.

Both men are fairly relaxed about the . It is probably a blip - but an unwelcome one all the same.

I would make three key points about today's figures.

The first is that, for once, the headline figure did not come as a surprise: the 3.5% rise is more or less what the analysts expected.

That's good news, because there have been so many "upside" surprises on prices in the past year, economists had started to worry that the trade-off between growth and inflation might have gotten worse.

There's still plenty of room to worry about the amount of spare capacity in the economy, and about whether the UK will be able to grow as quickly in the future as we did before.

But these figures don't provide much additional reason to fret.

There was a record monthly change in the Consumer Prices Index (CPI) between December and January (it actually fell, as you'd expect after Christmas, but by a record small amount, if that makes any sense).

But year-on-year, the core inflation measure - excluding food and energy - rose by much less than the headline rate, from 2.8% to 3.1%. The CPIY measure, which excludes VAT and other indirect taxes, actually fell from 2.8% to 1.9%.

It's far too soon to say whether higher import prices and the rising cost of energy will cause more lasting inflationary pressure in the economy. But it's pretty hard to spot right now. Especially when you consider what's happened to wages in the past year.

That's point number two: this short-term bump in inflation is going to be hit many workers harder than usual, because earnings growth is already weak to non-existent.

Though the annual rate has jumped up to 3.5%, that only tells you the change in prices between last January and today.

To get a sense of true rise in the cost of living you need to look at the average over the course of the year. Overall, the CPI measure of prices rose by 2.2% in 2009. The average forecast for 2010 is 2.6%.

So the hit to our cost of living is not quite as bad as it first looks. But it's bad enough, when you consider that average earnings grew by only 1% in 2009.

Two years ago, earnings were growing by about 4% (though in 2008, you'll remember, inflation averaged 3.6%).

In the private sector, earnings barely grew at all in 2009. As I've said before, workers' willingness to accept flat or falling earnings has played a massive role in the smaller than expected rise in unemployment in the past year.

At the Bank of England, some worry that big paydays in the financial sector - - will distort the average earnings figures in the next few months, especially for the public sector, where so many bank employees now technically work.

If you work for a bank that is majority-owned by the government, you're now included in the public sector.

Aside from making big profits, many banks are responding to public outrage about bonuses, by bumping up employees' basic pay instead.

That could push the headline "average earnings" figure up in the first half of this year, while telling you very little about the going rate of pay increases in the economy as a whole.

If the rest of us started demanding bigger pay rises to catch up with the likes of Barclays, the Bank of England could be in trouble. But there's little sign of that yet. Quite the opposite.

So this is likely to be a short-term bump, like the other two occasions that the governor has had to take pen to paper.

But my third point would be that the Bank still has reason to be nervous about this jump in the CPI, even if the rise in prices does not become entrenched.

That's because this month's return of VAT to 17.5% may not be the last "temporary distortion" the Monetary Policy Committee has to deal with in 2010.

Many expect a VAT rise to be on the agenda after the election - especially if the Conservatives win. Depending on the state of the economy, the next government could pre-announce a VAT hike to come in next year.

But if it were implemented immediately, it would push up the headline inflation rate again, just as the last blip was still working through the system.

This is going to be a very delicate time for the Bank of England: managing the exit from quantitative easing, and reassuring the markets that they have not let inflation get out of hand.

Even if it is another blip - and underlying inflationary pressures are well under control - another year of policy-induced "blips" is not going to make that job any easier.

How many economists does it take to write a letter? Yesterday, the answer was 20. But students of British economic history will remember that in the spring of 1981, the answer was 364.

Back then, the economy was emerging from a double-dip recession, but the recovery was far from secure. , the entire economics profession was up in arms.

In a letter to The Times, 364 of them - including the future governor of the Bank of England, Mervyn King, and the Labour peer, Maurice Peston - said that Howe's policy had "no basis in economic theory or supporting evidence", and that Britain's "social and political stability" was at risk if the government did not change course.

Nearly 30 years on, we now have taking exactly the opposite view: deriding the government for not tightening fiscal policy fast enough. The list is shorter, but high-quality: this time, it's a former Deputy Governor of the Bank of England, Howard Davies, and the Labour peer is Lord Desai.

The Conservatives were cock-a-hoop yesterday, heralding the letter as an "important political moment". Perhaps they've forgotten how that 1981 letter worked out.

As I described in a film for Newsnight in honour of the 25th anniversary of the 1981 Budget, history was not kind to the 364. In fact, the economy started growing strongly, almost as soon as Howe's Budget was delivered. In retrospect, the tax rise looked well-timed.

Will today's letter-writers fare better? The answer is almost certainly yes, because, this time, the economists have been careful to hedge their bets.

The main thrust of their argument is that the UK needs to cut its structural budget deficit more quickly than the chancellor has suggested. On this they are in agreement with the IMF, the OECD and all the ratings agencies. Presumably, the chancellor disagrees. But the majority of economists would probably say that borrowing needs to come down more quickly, including many inside HM Treasury.

In calling for the elimination of the structural current budget deficit over the course of the parliament, the economists appear to be endorsing Conservative policy. But note that this is not the same as eliminating the structural deficit entirely. And note, also, that the difference between this and Labour policy is not as great as you might think. According to the IFS, it would mean about £15bn in additional spending restraint or higher taxes - a little more than 1% of GDP. (See my post on the Green Budget.)

They - the economists and the Conservatives - are equally cagey about 2010-11. Yes, "other things equal", they would want efforts to cut borrowing to begin this year. But the timing should be "sensitive" to the state of the global recovery. And, of course, the government is already starting to tighten this year, by removing the fiscal stimulus and putting VAT back up.

It's nice to see that letter-writing by economists is back in vogue. But I'm not sure it will change the political weather in 2010, any more than it did in 1981.

How far is Britain from Greece? That's the question lurking behind British headlines in recent days. And the answer isn't 1,400 miles. We're talking finance here, not geography.

Watching the scenes in Athens, people understandably want to know whether there's any chance of the same happening here.

You'll be relieved to hear the answer: however bad things might be here, we really are a long way from being Greece.

Here's what we have in common with Greece: our budget deficit is more than 12% of GDP; our national savings rate is too low; and we've both recently won the chance to host the Olympics.

You may laugh, but for Greece, the cost of hosting the Olympics played a non-negligible part in putting it where it is today. Hopefully it won't play a big role in our financial future.

The low rate of national savings tells you that Britain - like Greece, and Portugal, and Spain, and Ireland - has a current-account deficit. We're a net borrower from the rest of the world, which means, at the margin, we're dependent on the rest of the world to fund a good portion of our government debt.

But if I tell you the magnitudes involved, I promise you'll feel better. Last year, Greece ran a current account deficit of more than 11% of GDP - the highest in the entire OECD. Portugal's was not much better: nearly 10%. Spain's was 5.3% of GDP. Compared to that lot, the UK's roughly 2.5% of GDP current-account gap looks rather small beer. And Ireland's was similar.

What's important about these figures is that the Club Med countries - I'm trying to avoid - went into this crisis with even deeper macroeconomic imbalances than we did. That ought to make our path out easier as well.

But of course, there's still our whopping budget deficit. That's not so different from Greece. It's also why we have been somewhat affected by the squalls on the Continent in the past few weeks: the spread on UK sovereign default swaps has been rising for all the "high-borrower" countries recently, even those which, like the UK, have relatively low stocks of debt.

But as the chart above shows, the speculators who bet on these instruments - as Robert Peston points out today, much of it is indeed speculation - these speculators are still distinguishing between the UK and the likes of Portugal and Spain. True, as I pointed out in a post late last year, this market is rating us more as a AA country than a AAA one. We have, to that extent, moved in Greece's direction. But there's a long way to go.

High borrowing matters short-term because you have to ask the bond markets for money more often. It matters medium-term because it pretty quickly adds to your stock of debt. But it is relevant how much debt you had to start off with. Britain started out with much smaller stock of debt as a share of GDP than Greece - it's now about 55% of GDP. In Greece, it's well over 110% (no point getting too precise, given the rate both of those figures are going up.)

But the two most important reasons to sleep more soundly tonight than the Greek prime minister are the average maturity of our debt, and the pound.

According to the Debt Management Office, the average maturity of UK sovereign debt is 14 years. In the US, it's about four years. In France and Germany it's six or seven. Greek debt has an average maturity of just under 8 years. As I mentioned yesterday, they have about 10% of their debt coming due in the next few months.

That makes an enormous difference to the amount of gilts we need to ask the debt markets to buy in a given year. It also means that even fairly large increases in funding costs will only have a gradual effect on the cost of servicing UK debt. That burden is still lower today, as a share of total spending, than it was for most of the 1980s and 1990s.

For Greece, debt servicing costs now account for just under 12% of GDP. In the UK, it's costing less than 3% of GDP.

You might be surprised to hear that Germany, France and Italy are all going to be issuing more sovereign debt on the markets in 2010 - even though our budget deficit, in absolute terms, is more than double the size of theirs. That is entirely because of the relative maturity of our debt.

Take Germany as an example: its budget deficit in 2010 will be about 140 billion euros, whereas ours will be about 190 billion. But because of the amount of debt it has coming to redemption, Fitch, the ratings agency, reckons that Germany will be looking to issue about 386 billon euros in new sovereign debt this year.

The estimate for France is 454 billion. Whereas the UK will be issuing a "mere" 279 billion. That is one reason why French CDS spreads have crept up a bit as well.

And then there's the final reason to feel a bit more cheerful: the pound. We may be talking about a currency crisis in the eurozone. But, arguably, a big part of the problem for Greece - at least from the standpoint of international investors - is that it can't have one. Its currency can't devalue independent of the rest of the eurozone.

As Michael Dicks pointed out in his recent contribution to the IFS Green Budget, if you're thinking only about the currency, we've already had our crisis. The pound fell further in 2008-9 than during any of the sterling "crises" of the 1960s and 1970s. Or the ERM.

We could face an uphill struggle exporting our way out of recession, especially when most of the rest of the world is trying to do the same thing. But a 25% devaluation is a good way to start.

We're facing some enormous challenges coming out of this crisis - fiscal and economic. Given the rate at which our debt is climbing, the clarity of politicians' commitment to bring down borrowing will be crucial to how we fare in the markets over the next year or two. But, you will be relieved to hear, the government - any government - will really have to work hard to turn us into Greece.

Update 08:30, 16 Feb 2010: A few comments about the UK debt numbers in this piece, which some have questioned (eg comments 14 and 22).

I said that UK public debt was roughly 55% of GDP (though I did add the figure was rough - the numbers are changing so fast.) The 55% number is the Treasury's estimate for the end of March 2010, or the end of the 2009-10 fiscal year. The figure is 59% if you include the upfront cost of the financial sector bailouts.

Excluding those interventions, (the estimated long-term cost of which are factored into the medium-term forecasts) the debt forecast for the end of fiscal year 2010/11 (March 2011) is indeed much higher - around 65%, as you would expect with a more than 12 % of GDP deficit.

More seriously, one of you pointed out that I used a net debt figure for the UK and a gross debt figure for Greece. That was careless of me. Sorry. If you use the Maastricht treaty definition of gross public debt for both countries - which doesn't take account of any of the government's financial assets - the comparison is less flattering to the UK. But it doesn't change the basic story.

According to the OECD, UK debt on the Maastricht definition stood at 66% of GDP in 2009. That compares with 111% for Greece. The figures next year are forecast to be 78% for the UK and 120% for Greece. The average gross debt ratio for the Euro area is expected to be 85% in 2010.

All eyes are on Brussels, as we await more details of the "co-ordinated measures" on offer to help Greece. There's just one problem. Even a bail-out - if that is what it turns out to be - won't solve the basic problem facing Greece, or the eurozone.

Let me explain. Greece has two big problems: a debt problem and a competitiveness one. A "bail-out" won't solve either - at least, not a bail-out that any self-respecting German would be willing to consider.

We may get a bit more clarity today on the support that Germany and others are planning to offer Greece. More likely, as I said yesterday, we will have to wait until the next week's meeting of European finance ministers. That is what today's statement suggests.

But we can be fairly sure that whatever deal is struck, it will not make Greece's debt problems go away.

The best that Greece can expect from its eurozone partners is a promise to underwrite Greek debt, or some form of bilateral loan to tide Greece over. The first would cut the risk premium on Greek debt and make it easier to service. The second would give them cash to get them through the next few months, when nearly 10% of their debt comes up to maturity.

But neither would do much to lower the stock of debt hanging over the economy. Or lessen the need for swingeing cuts in public services and tax rises over the next few years. Indeed, if Berlin has anything to do with it (and we know it will) - Mr Papandreou's government could come out of this with an even tougher schedule for cutting the deficit than it had before.

So, it won't make the debt problem go away. It probably won't make the burdens on the Greek government - or its people - that much easier. It just goes from being 'impossible" to merely "intolerable".

It goes without saying that it won't solve Greece's competitiveness problem either. I promised a post today on the long-term structural problem underlying this eurozone crisis. Happily - or perhaps unhappily - Martin Wolf beat me to it, in . As he says:

"So long as the European Central Bank tolerates weak demand in the eurozone as a whole and core countries, above all Germany, continue to run vast trade surpluses, it will be nigh on impossible for weaker members to escape from their insolvency traps. Theirs is not a problem that can be resolved by fiscal austerity alone. They need a huge improvement in external demand for their output."

As I showed in , it's no accident that the countries in the firing line in this crisis are also the ones whose competitiveness has deteriorated the fastest within the eurozone since the single currency began.

This chart tells the story, from Janet Henry at HSBC.

German unit labour costs have barely budged since 2000, and German inflation has been lower than the eurozone average. As a result their exports have gradually become more and more competitive in world markets. Whereas Greece, Spain, Portugal and the rest have had relatively higher inflation, faster wage growth, and thus growing unit labour costs - and falling competitiveness.

This is why there is no comfortable route of this for the Pigs (Portugal, Italy, Ireland, Greece and Spain) - though for some the path is tougher than others.

As I've said many times in the context of the UK, it's tricky to cut borrowing as a share of GDP when your GDP is itself shrinking or stagnant. It is more or less unthinkable that Greece would manage to do this and achieve the real cuts in wages and living standards that would be necessary to seriously improve their competitiveness within the eurozone.

Martin Wolf says that higher German domestic demand is the solution (or a big part of it). That would certainly help. So would a weaker euro - though remember, in the current situation, the biggest beneficiaries of a weaker euro would be German exporters.

But imagine you were coming to the situation for the first time. You knew nothing of the Bundesbank. Or the history of the single currency project. Or even the market impact of the failure of Lehman brothers.

If you were such an unworldly creature, you might come up with two, more ambitious proposals for tackling Greece's fiscal and competitiveness problems head-on: debt restructuring for Greek bondholders; and a higher inflation target for the ECB - say, 4%, instead of 2%.

I touched on the first of these, briefly, on the Today programme this morning.

If you could pull it off, restructuring Greece's debt (with some suitable "haircut" for private bondholders) would actually lower the real burden of its debt, making the path out of this more plausible. Of course, Greece would pay a price for it in the markets. For a long time. But it's not as if it's never been done. And it's not as if the alternative path for Greece is much brighter.

"Unthinkable", you may say. "Remember what happened after Lehmans was allowed to go bust - and everyone in the world holding private bank debt started wondering whether they were next?"

The memory of that is indeed one of the many reasons that a debt-restructuring is not being seriously considered. You could be looking at Lehmans, cubed, if the markets started seriously questioning every developed country sovereign bond.

But the international community has now accepted that we need ways to restructure private debt without all hell breaking loose - ways to make private bondholders bear some of the burden when banks get into trouble, not just taxpayers. A few years from now, I wonder whether we will be saying the same about sovereign debt problems as well.

So much for unthinkable number one. What about unthinkable number two - a higher inflation target for the ECB?

This post is so long already - and this is so unlikely to happen - that I won't belabour the point. But this is something that was discussed, a little, when the euro began, and especially when the membership extended beyond the European "core".

Arguably, a higher inflation target for the eurozone would help the less developed economies on the periphery grow faster in real terms, not just nominal. It could also make it easier for countries at the periphery to cut labour costs in real terms - without actually lowering people's nominal wages or suffering deflation. And it could weaken the euro, which might help growth as well.

A 4% inflation target for the ECB wouldn't solve the problems at the periphery. You would still need more domestic demand in Germany, and some tough structural reforms in Greece and the rest. For all these reasons, the short-term benefits of slightly higher inflation could easily be frittered away. But it might, just might, move things in the right direction.

Pity that the eurozone members cannot even raise the question. Let along make it happen.

Officials are letting investors run away with the idea that there will be a solution to Greece's problems by the end of the week. European financial crises don't usually go so smoothly. Let's hope this will be the exception.

I said yesterday that a lack of clarity about how, exactly, Greece would be helped was a big part of the problem. Have things got any clearer since then? Well, yes and no.

Yes, because German officials have told the FT that they are considering a bilateral support programme, with the likes of Germany and France either lending directly to Greece or agreeing to buy Greek sovereign debt.

But no, because the cacophony of voices coming out of Brussels, Athens, Paris and Berlin on the subject suggests that they are still quite a long way from deciding what a Greek support programme would involve.

We do know that a full-blown EU support plan is dead in the water. As I reported from Davos, and British officials have been happy to confirm this week, the UK will have none of it. Sweden - another key non-euro country - says no as well.

The tussle over the IMF isn't over. But the at least some German officials are coming round to the idea that IMF involvement - of some sort - would give the deal greater credibility in the markets.

For my money, the biggest untold story is the role - or lack of it - of the ECB. Though it cannot bail out a eurozone member government, it can set up additional swap lines for the Greek central bank, in essence, to prop up its reserves. That can give some powerful - and visible - reassurance to investors in any country facing a potential run.

This is what the US Federal Reserve did in late October 2008, when it announced temporary swap arrangements that would make an extra $30bn in dollar liquidity available to the central banks of Brazil, Mexico, Korea and Singapore. It's not clear why the ECB doesn't do it for Greece - or other Pigs (Portugal, Italy, Ireland, Greece and Spain). It's only a short-term measure. But it couldn't hurt.

The biggest fear, voiced privately by officials in Germany and the UK - is that the crisis will follow the usual trajectory for European currency crises.

This would be the traditional script: the leaders come up with what they consider to be a strong statement of support for Greece after they meet tomorrow. Investors read it. They ask, exactly, what it means. The leaders fall back on a mixture of hand gestures and verbal fudge (or worse, they each give clear, but completely contradictory answers).

Markets swoon in disappointment. A nervy weekend follows. Only after eurozone finance ministers dine on Monday night, in advance of the monthly meeting of EU finance ministers, do the outlines of a Greek "firewall" become clear. And, thanks to all that uncertainty, the deal is rather more expensive than it would have been the week before.

Euro officials know the risks of re-living the past. Let's hope they avoid them.

Others may rush headlong into their financial crises, but on the Continent they like to give them time to mature. There are those who've been betting on a eurozone chapter to this financial crisis ever since Lehmans. Others started betting on a euro showdown the day the single currency began.

Now the nay-sayers think they've hit the jackpot. Read the headlines, and you'd think that the problems of Greece were about to bring the eurozone to its knees. But it doesn't have to be that way.

To crack this, European officials and governments just need to do something they find very difficult. They need to get ahead of the curve.

More specifically: they need to show they have a solution not only to the short-term problem of Greece but also to the long-term structural problem for the eurozone that the have come to represent.

We should remember one thing: Greece is a special case. The chart below (from Goldman Sachs) tells the story. Other countries have a double-digit public deficit as a share of GDP, or a stock of public debt over 100% of GDP, or debt-financing costs that are also over 10% of GDP. But Greece is the only one to have all three red marks.

Greece is also the only country that's been forced to admit that its tax revenue and spending figures in recent years had been more or less fictional. And its public servants seem uniquely adept at the politics of denial. . And the finance ministry says that in 2009 alone, 29,000 public-sector workers were hired to replace 14,000 who retired. This, even as the country was slipping deeper and deeper into the red.

So, it's a special case. And it's small - responsible for perhaps 3% of eurozone GDP. That's why many have said Greece was a good first test case for the eurozone. The stakes seem smaller; the amounts more manageable. But that's only true if ministers and officials get it right. If they get it wrong - a crisis that did involve 3% of the eurozone suddenly involves more than 30%.

The challenge is to fix it - and contain it. But how?

I'm not in the business of prescribing solutions. But I would say that any solution to the Greece problem has to send two powerful messages to the financial markets.

The first is that - all appearances to the contrary - Europe can do crisis management.

The second message is that they "get" the broader structural problem afflicting the euro area and they're committed to fixing it.

This last challenge merits a post in its own right. I'll say more about it later in the week.

But here's what I would say about message number one.

One reason why so many predicted a European "round" of the financial crisis a year ago was that people looked at the mish-mash of European institutions - the ECB, the commission, the council of ministers, all the national financial regulators (not to mention the web of treaty clauses that did or did not bind them together) and wondered: "how is this lot going to respond if a Lehmans explodes on their patch?"

Henry Kissinger famously asked: "when I want to call Europe, who do I call?" Investors' version of this question is: "who's going to pay?"

And when it comes to Greece, the answer has been far from clear.

Every time the markets think they have an idea how Greece could be bailed out - for example, through a loan from the European Investment Bank - the institution in question releases a statement ruling it out. This morning the EIB said it could "only finance economically viable projects" and that its rules would not allow it help an EU nation cover a budget deficit.

A similar thing happened two weeks ago, when President Barroso appeared to tell journalists that EU support could be there for Greece. Hours later the UK Chancellor, Alistair Darling, made clear that he and other non-euro members of the EU would expect the eurozone to solve its problems first.

As it happens, I don't think EIB involvement is ruled out. The EIB did participate in a broader IMF loan package for Latvia last year (though, crucially, Latvia is not in the euro). What the EIB doesn't want to do is take the lead.

The problem is that nobody does. It's that lack of clarity - more than their details of their particular financial situations - which is driving investors to punish other Pigs (Portugal, Italy, Ireland, Greece and Spain) as well as Greece.

It doesn't help that personal rivalries - and institutional pride - seem to be getting in the way of a deal.

Almost everyone - including the Greek government - thinks an IMF programme would provide the cleanest, most credible, solution. That could be the IMF acting alone, or alongside the EU. However, key European officials are dead against the idea. This is mainly because they can't bear the symbolism of the IMF coming in to bail out the euro. But there are also suggestions that President Sarkozy is fighting an IMF deal for domestic political reasons.

If it were held today, French polls suggest that the IMF Managing Director, Dominique Strauss-Kahn would handsomely beat Sarkozy in a presidential election. Strauss-Kahn has made no secret of wanting to come back to French politics (). The word is that Sarkozy can't bear the idea of his rival coming in on a white charger to save the euro.

This may or may not be a fair depiction of President Sarkozy's motivation. Only he can say authoritatively one way or another. But we do know that such speculation does no good for the euro, or for Greece.

At their summit on Thursday, investors - and the rest of the Pigs - need Europe's leaders to show they can rise above all this. And that they can indeed do 21st-Century financial crisis management after all.

Update 16:10: Dempster (Comment 5) takes exception to my use of the term Pigs - the rather unfriendly acronym for the eurozone's problematic periphery (Portugal, Italy, Ireland, Greece and Spain). True, it is disrespectful. But you have to let economists have some fun.

Maybe you would feel better if I told you the new term that some are using for the economies in trouble if Greece should fall is Stupid (that's Spain, Turkey, UK, Portugal Italy and Dubai). Then again, maybe not.

It may not be the end of QE, but they have to hope it will be the beginning of the end. And they have to hope the Bank will will have more to show for its £200bn as the months go by.

Two observations about today's statement (), and a few broader implications of today's decision.

Observation One: At best, this is a very weak vote of confidence in the recovery. The paragraphs about the economy are dotted with words like "sluggish", "impaired" and "gradual". Our supply capacity is "probably impaired"; credit conditions "remain restrictive". The prospect is only for a "gradual recovery in the level of activity".

The best that the MPC can come up with on the subject of business investment is that the rate at which it is falling "appears to have eased". Likewise: "spending by households appears to have picked up a little, though that may partly reflect temporary factors".

Observation Two: They are, as expected, keeping the door open to further purchases. And the statement tries very hard to remind us that the MPC believes it is the stock of assets held by the bank that matters for monetary conditions, not the continued flow of purchases.

We'll have a good test of that this afternoon. The decision was widely expected. The stock of purchases - that is, the amount of gilts that the bank has taken out of the market - is unchanged.

That should mean that the bond market is unperturbed, and that the Debt Management Office will have no trouble shifting tens of billions of gilts over the next few months. I will be interested to see. But it would certainly be odd if the market took this as a shock.

What does this mean for the future?

One clear implication is that monetary policy has probably now been set for the duration of this Parliament. The MPC has made a habit of taking QE decisions every three months, so it can draw on the latest forecasts in the quarterly Inflation Report. If the general consensus about the timing of the election is correct, the next time the MPC thinks hard about changing monetary policy will be on polling day: 6 May.

The Bank will take issue with this assumption: in theory, monetary policy is reviewed every month. But with all the subdued language, there is surely little chance of the committee wishing to tighten policy in the next few months. And re-starting asset purchases, though perfectly possible, would be a consequential act - and send a pretty powerful signal about the state of the economy. It's hard to believe they would do that without a new set of forecasts.

Another observation would be that if this is the end of QE - and we do not know that it will be - but if it is the end, it's a pretty whimpering one. The Bank is not retiring, triumphant, from the field, the enemy slain, its job well and truly done.

The MPC is hoping the policy has worked. It sees some signs that it has. But - as the chart above shows - the conditions for lending in this country, especially to small and medium-sized businesses, are still much weaker than they would have wanted.

Quantitative easing may well have saved the economy from a credit-led depression. We will never know. It is interesting to note that monetary conditions in the Eurozone and the US are even worse than ours. That difference may be partly down to QE.

But - as the statement makes clear - the MPC needs to believe there is more to come. Its members must hope and trust that the £200bn of additional cash - roughly 14% of the economy - that they have pumped in is going to do more to help the economy over the next year.

That "long and variable" lag between action and result is one good reason to pause. Interest rate changes take a long time to show their true effects. If anything, the impact of QE could take even longer to show through. At least, that's what they tell us at the Bank.

But another reason to pause today is that, if £200bn hasn't worked, you have to wonder whether there's much point pumping in a lot more.

The more closely you examine the gap between the Tories and Labour on the deficit, the smaller it seems to get. But the big message from today's is that the future performance of the economy is going to have a far greater impact on the public finances than the political affiliation of the party in power.

Consider the following key conclusions from the report: if the Treasury's forecasts for economic growth are right, then the IFS believes that borrowing will be slightly lower than forecast in the PBR over the next few years. But, say the IFS, the deficit would probably still remain too high, for too long, to command confidence in the financial markets.

That is why they recommend an additional £13bn in tax rises or spending cuts between 2011 and 2015 (they don't recommend any further tightening this year). That's on top of the £57bn already announced by the chancellor.

The Conservatives will be pleased to note that is very similar to the extra amount of tightening the IFS believes that a Tory government would need to implement over the period, to meet what the IFS deduces to be its target of eliminating the structural current deficit over the same period.

In other words, the IFS is saying that the Conservatives' plans, on the basis of current forecasts, would preserve market confidence in the UK.

However, the report notes that you can be a lot more gloomy about our economic future than the Treasury is. Specifically, the Barclays economists involved in the report think the permanent hit to GDP from the crisis is likely to be at least 7.5% of national income, not 5% as estimated by the Treasury. And they think our long-term potential growth rate after this will be 1.75% a year, not 2.75% as forecast in the PBR.

So much for the detail. What's the punchline?

The punchline is that, if the Barclays folk are right, the next government would need to find - not an extra £13bn, but an extra £66bn to fix the structural hole in the public accounts. The IFS doesn't think this would be feasible in one Parliament unless the markets had a gun to the chancellor's head so you would be talking more pain before and after 2015.

And remember, that's their "central" scenario. You don't even want to know about the pessimistic one.

More to say on this - but the IFS press conference is still going on and I don't want to miss any more gems.

I'm left with the following thought. Once you strip away the debate about timing and possible cuts in 2010-11 - which, as I have said many times, has always been about rhetoric more than a big difference of policy between the parties - once you strip away that debate, this election could end up being fought over a difference of around 1% of GDP in medium-term spending plans. That's more or less what the 2005 election was fought over as well.

As then, the winning party could find the economy has bigger things in store.

Nixon famously denied he was a crook. At the weekend , confronting directly the argument that faster deficit reduction would jeopardise growth. Intriguingly, he also talked about "co-operating with the Bank of England" to achieve that end.

I'll say more on the Bank in a minute: I'm not sure Mervyn King would be happy to hear the process described in such terms.

But first a recap of the fiscal side. In his interview the Conservative leader said there wouldn't be "swingeing cuts" in public spending in 2010 (George Osborne never said there would be). But yes, he would "make a start" on cutting the deficit:

"And to those who say you're taking money out of the economy, I would say, if you don't do this, even more money could be taken out of the economy in two ways. One, because interest rates could go up as they have done in Greece. Secondly, money gets taken out of the economy because there isn't the confidence there and it's confidence we need so badly. "

He then claimed that if the UK was paying a Greek-style risk premium on its government debt, the average British mortgage would go up several hundred pounds a month. That's what I mean by a more "punter-friendly" explanation (later this week I'll say something about the comparison with Greece.)

For months, I've been wondering why Messrs Cameron and Osborne hadn't made more effort to dispel the idea that they would put deficit reduction before economic growth.

Rightly or wrongly, both men believe that cutting the deficit quicker and deeper than Labour plans - starting in 2010 - could actually help the recovery, by preventing a costly run on government debt, and sharply higher long-term interest rates as a result. By and large, they've struggled to get this highly respectable - but deeply counter-intuitive - idea across to the British people. But yesterday, Mr Cameron had a bloomin' good try.

This may be read as a "softening" of the Tory rhetoric around cuts. In some ways it is. But I don't think the substance of the Conservatives' post-election Budget plans has changed much in the last six months. What has changed is that they have finally decided to confront the "risking the recovery" argument head-on.

For months, I've been asking Tory strategists why Osborne or Cameron didn't assert more clearly that they wouldn't do anything to put the recovery at risk.

In their response they have often adopted the slightly patronising tone of the professional political operative talking to a naif. That would sound hopelessly defensive, they would explain - and risked giving the opposing argument more weight. Like Nixon saying "I am not a crook".

Yesterday, those concerns went out the window:

"Return to strong, sustainable global growth is still some way off. I can reassure you that we are not about to jeopardise Britain's economic future by suddenly pulling the rug from under the recovery."

Now, one of the big reasons why Cameron et al think the economy could withstand some fiscal tightening is that they believe monetary policy could counteract any effect on growth - if not by cutting interest rates (a bit tricky just now), then by holding off rate rises for longer.

In the interests of the new clarity, the Tory leader tried to incorporate this thought into his comments yesterday as well. But in so doing he started walking on some very thin ice. Here's what he said:

"The fact that we need to make a start is absolutely clear - must, must happen. The scale of what can be done should be done in co-operation with the Bank of England, with the monetary policy authorities... because of course one of the aims of what's being done... is to keep those low interest rates."

There are already regular consultations taking place between George Osborne and senior Bank officials (including Mervyn King) to help each side know what they can expect from the other if and when that Osborne emergency Budget in the summer ever gets delivered.

But, arguably, that falls into the category of appropriate consultation. For Cameron to say bluntly that the scale of any 2010-11 tightening would be set in "co-operation with the Bank of England" takes both sides onto dicier ground.

Independence means the MPC sets interest rates by a monthly vote, independent of what any minister might have wanted - or been promised.

Many have thought that QE posed the greatest challenge to the Bank's independence since 1997. As it turns out, QE could be just the start.