The latest statistics on industrial production, published yesterday, show some slowing in the rate of growth. The April figures indicated an annual growth rate of 2.9%, but this slowed to 2.2% in May and to 1.2% in June. These data provide further evidence to suggest that the speed of recovery is now starting to go into reverse and that growth in 2015 will be noticeably more modest than it has been in the current year.

The government is working on a proposal to allow universities to buy the loan book of their own graduates. While graduates of universities that opted into this scheme would continue to pay back their loans through the tax system, that part of the student loans company's assets that comprises loans made to students and graduates of a given university would be sold back to the university itself. The student loans company might expect to get a better price for this asset from the university than from other investors because the university can do things to maximise the probability with which loans are fully repaid. In other words, the university would be incentivised to optimise the labour market experience of its graduates.

An immediate issue concerns the ability of universities to afford to buy the loan book. Over a very short time, the cost associated with the loan book would swamp the finances of a typical institution. But it would be possible for institutions to borrow from the financial sector to fund their purchases - and it is reported that a large financial investor is already interested in the scheme.

Several 'top' universities are said to back this proposal. The scheme certainly does have some attractive features. One is that it shifts the risk associated with the loans system from the government onto the universities - and that is a good thing because the universities are positioned to mitigate tha extra risk by enhancing their careers support, making their courses more relvant to the needs of the labour market, and so on. Where exactly the risk resides will depend on the price at which a loan book is sold, but the likelihood is that it would be sold at a higher price under this system than under the current system.

There are two ways in which this type of scheme could work out in practice. One would be for some universities to opt into the scheme while others opt out. Amongst the former group, we would expect to see a response to incentives such that these universities' graduates become more employable - a clear gain. The value of the loan book of the second group of universities would, however, fall as adverse selection ensures that these are the universities whose graduates are least likely to repay loans in full. By reducing the averaging out effect of pooling loans across all universities, some degree of toxicity is thus introduced into the loan books of the universities that do not opt into the scheme. If employers then use this as a signal that these universities' graduates are less employable than others, the costs thus imposed could offset the benefits associated with the other universities' response to incentives.

So allowing universities to opt in or out of the scheme may not work, simply because all universities feel that they have to opt in. What if this were to happen? Selling each university its part of the loan book at a given price per £ loaned would penalise universities whose graduates are less successful in the labour market. In effect, as such graduates pay back less of their loans and as the universities would receive less net income, this would be similar to - though considerably more complicated than - a system in which universities whose graduates are less successful have to charge lower fees. All institutions would be incentivised to improve the labour market performance of their graduates, since by doing so they could recover more of the loans on the books.

The key issue that needs to be addressed in higher education finance is the long term sustainability of the funding model. The resource accounting and budgeting (RAB) charge - that part of the student loan book that will not be paid off - has risen to 45%, highlighting this concern. The proposed changes may do something to help. The present system has encouraged all institutions to charge the maximum tuition fee, and this has not encouraged discipline on costs. The proposed system, by way of contrast, might encourage universities whose graduates are less successful to reduce their costs.

So, while much of the detail remains to be worked out, the new proposals - inasmuch as they might lead to something better than we have at present - merit a cautious welcome. They promise to buy an increase in efficiency at the cost of increased complexity. Hopefully the exchange will be a beneficial one, but the proof of that pudding will be in the eating.

The industrial production statistics for April show continued healthy expansion in this sector, providing further evidence of continued economic recovery. The data continue to suggest that we are experiencing a spike in growth, however. The prospect for this year is for the rapid pace of growth to continue, but - while continued growth is likely into next year - the rate of growth is likely to slow down quite sharply as we look further ahead. The latest forecast from my neural network model is shown below.

The CBI has revised upwards its forecast of GDP growth for the current year, to 3.0%. This prediction appears reasonable. The confederation now expects growth in 2015 to be 2.7%, and that may be optimistic.

A striking feature of the detailed aspects of the CBI forecast is that - like the EY ITEM Club - it signals a substantial growth in investment during the current year. While total business investment fell by 1% in 2013, the CBI expects it to grow by 8.3% this year and by a further 9.1% next year. With growth and confidence returning, a return to growth in investment would not, of course, be surprising. But the magnitude of these estimates is striking.

The growth we are now experiencing is, of course, welcome. There are, however, aspects of the economy's trajectory that look like bubbles. The housing market is one, and business investment may turn out to be another. Some observers have suggested that the Bank of England should look to raise interest rates sooner rather than later. In light of the considerable spatial disparities that are emerging (with London booming while the recovery is still nascent in peripheral regions), an interest rate hike would be premature in the absence of substantial support to the regions. A reduction of fiscal stimulus to the core region - particularly through housing market support - may, however, be timely.

Industrial production data were published earlier today, an event that always causes me some excitement because it means I can update the forecasts produced by my neural network model. Here they are. They continue to suggest that the current rapid recovery is set to continue, but that the rate of growth will become much more modest over the next two years. The recovery is good news, but we should not get carried away - it looks a lot like blipping, and we may need to get used to slower growth than we are currently experiencing.

The latest index of house prices produced by Halifax reports an annual rate of growth of 8.7% across the UK. The rate is highest in Greater London, at 15.7%, but several other regions are now experiencing substantial increases in prices. These include the North West (12.7%), Northern Ireland (11.4%) and the West Midlands (9.6%). By way of contrast, price rises in the North have been very modest indeed (1.5%), and in Scotland prices have fallen by 1.4% over the past year. The recovery in the housing market does appear to be spreading at last, but it remains patchy.

Increases in prices in the South East have been modest relative to those in the capital - some 5.3%. Of course, prices are determined by a mix of demand and supply factors, and there is scope to raise supply in London itself.

Doing so is important - with such an uneven economic recovery, lagging regions would be ill-served by a premature hike in interest rates. Ensuring that the housing market is not constrained in areas where supply needs to expand is key to spreading the benefits of recovery to all.

The latest data indicate that, in the first quarter of this year, GDP grew by 0.8%. This implies a very healthy 3.1% growth over the course of the last year.

The performance across sectors is uneven, with particularly strong growth in manufacturing and in distribution. Manufacturing grew by 1.3% over the quarter, and by 3.5% over the year. This is clearly good news in that it addresses concerns that the UK had, before the recession, become over-reliant on services. Strong growth in manufacturing helps raises incomes, but with developments in technology making this sector increasingly capital-intensive, the progress of the sector may not be reflected in such strong employment growth. The extent to which this concern is well founded will require monitoring as the recovery progresses. The strength of recovery in the distribution sector (which includes, amongst other things, retail and wholesale industries) reinforces the extent to which this has, at least until very recently, been a recovery led by consumer spending. Recent forecasts from, amongst others, the EY ITEM group, suggest that investment is set to rise significantly this year. If it does - and there is still surely a question mark surrounding their precise forecasts - then that will strengthen the underpinnings of a recovery that has, till now, been built on rather fragile foundations.

Other metrics of the recovery, including house price changes, suggest that experience across the regions is very patchy. Data on output growth by region are produced with long lags and are not considered to be terribly reliable, but the evidence that this recovery is spatially uneven suggests that the very encouraging aggregate statistics may serve to conceal what is, in reality, a much more nuanced picture. The data on underemployment released by the Work Foundation likewise suggest that the impact of output growth on the labour market is very different to – and less comforting than - what we have experienced in the past.

Nevertheless these most recent data offer much hope that the economy is indeed recovering.

This morning's release of the latest labour market statistics provides a dose of good news all around. The unemployment rate has fallen below 7%, and earnings are rising at 1.9% over the year. The rate of earnings growth is particularly pronounced in manufacturing, where it is 2.8%, possibly reflecting the onset of skills shortages. In finance and business services, meanwhile, earnings have grown at only 0.3%, possibly reflecting in part the decline of bonuses.

The detailed data still paint a more nuanced picture. Take productivity as an example. Output per job rose by 1.3% over the year to quarter 4 in 2013. This is a marked improvement on the 0.5% achieved the previous quarter, and certainly better than the declining productivity that was still being experienced in the first quarter of last year. However, improvement in output per hour has been considerably less impressive. This was still falling as recently as the third quarter of last year. The final quarter figures are a little more encouraging (suggesting 0.7% growth on a year earlier), but remain fairly muted.

Another aspect of the labour market which has been interesting in recent years is the dramatic rise of self-employment. Between December-February and the previous quarter, self-employment rose by some 146000, and the total now stands at more than 4.5 million. The latest figure represents a 7.1% change over the year. Self-employed workers now comprise 14.8% of the workforce. We know that much of the increase in self-employment has taken place amongst older demographic groups, and it remains unclear how much of the rise is due to entrepreneurial development as opposed to people running out of labour market options. Clearly more research is needed on this.

In sum, therefore, the statistics are encouraging. But the labour market is clearly changing rapidly, and an exclusive focus on the headline metrics risks being more than usually misleading.

The rate of growth of consumer prices in the UK has again slowed - to an annual rate of 1.6% in March. This has raised hopes that real wages, which have fallen and then stagnated over recent years, may finally have turned a corner. Earnings data become available tomorrow, but - since they are produced with a longer lag than the price data - will cover the three months to February. But clearly, if real wages do turn out to be on the rise, a major component of any explanation will be the slow increase in prices.

The low rate of price inflation thus merits some consideration. Since August of last year, the value of the pound relative to other major currencies has increased. Against the euro, it has risen over 5%, while against the US dollar it has risen by well over 20%. This has led to cheaper imports, putting downward pressure on price inflation. The fundamental basis for this appreciation is unclear - while confidence in the economy's ability to deliver growth has clearly increased, the current account balance has deteriorated sharply over the last two years.

If nominal earnings do indeed soon rise faster than prices, then that would suggest a turnaround in productivity - and that would of course be welcome. But the growth rate of productivity looks set to remain slow, well shy of its trend, for some time to come. The supply side issues underpinning low productivity still need to be addressed urgently. The labour market is still some way off returning to normal.

The latest figures for industrial production (up to February) have been released today. These allow me to report the latest forecast from my neural network model. The forecast is now for a less dramatic (but still pronounced) spike in output than previously predicted. The forecasts in the graph below cover a 24 month period, and suggest that, from early 2015, the rate of growth of output will slow down sharply. While the recent run of good news on the economy is cause for some celebration, caution about the medium term is still warranted.

The latest data on labour productivity show some positive movement. In the fourth quarter of last year, productivity grew by 0.3%, representing a 0.7% change over the course of the year.

A positive outcome on productivity is, of course, welcome following the dismal performance over the last few years. Nevertheless, this rate of growth remains below half of the long run trend.

The news coincides with the release of an important report from the Institute for Public Policy Research. This shows (Fig. 8.9, p.104) that British investment in training over the last few years has lagged way behind that of competitors. Without addressing the shortfall in human capital, productivity will remain a challenging feature of the UK economy, and will continue to pose a threat to the recovery.

The Bank of England’s Financial Policy Committee has sounded a warning about conditions in the housing market. It notes a rise in mortgage approvals of some 40% over the last year, and a record level of mortgages for which the loan is more than four times the borrower’s annual income. This warning reflects more widespread concern about the emergence of a housing market bubble.

The latest data on house prices do indeed show a rapid acceleration, with average house prices across the country growing by some 6.8% over the year January (with the Bank’s data suggesting a further sharp rise since). But this figure conceals some very substantial variations across the regions. In London, house prices are growing at a rate of 13.2%, surely unsustainable. In the South East, the increase is 7.1%. In other regions the rate of growth is much more modest – in the North East, house prices have grown by just 0.6%, and in Scotland by just 1.4%.

Regional unemployment disparities remain wide, with rates varying from 5.2% in the South East to 9.5% in the North East. Moreover, while unemployment is falling quite rapidly in the South East, the latest data record a rise in the North West, Yorkshire and Humberside, the East of England, and the East Midlands.

The latest available data on regional growth rates of gross value added – though somewhat out of date - likewise indicate a very uneven recovery. These show the South East growing at 2.5%, but most other regions growing at less than 1% per year, and with the East Midlands actually contracting.

In sum, these data indicate a considerable measure of spatial disparity. Recovery is proceeding apace in the South East, but has barely begun in some other regions. Past experience suggests that the improvement in the state of the economy will transmit across regions eventually – though it appears to be doing so more slowly this time than it has done in the past.

The extent of the disparities at this juncture is, however, a little worrying. The boom in the South East needs to be checked, but without stalling growth elsewhere. Monetary tools represent the mainstay of macroeconomic stabilisation policy, but a hike in the interest rate could not check growth in one region without causing profound damage in others. Different conditions across space call for policies that have different impacts across space. The solution to the South East housing bubble is not, therefore, to be found in macroeconomic policies – rather it is to address the supply side constraints. That means, quite simply, building more homes.

The latest report of the Office for Budget Responsibility (OBR), released to coincide with today's Budget Statement, raises the forecast for GDP growth to 2.7% for the current year. Since no forecaster has performed well in recent times, this news, in itself, is not terribly interesting. What is more interesting is the fact that the OBR forecast remains so far below that of the Bank of England - 3.4% - though the Bank does expect a somewhat more severe downward adjustment in the growth rate in 2015 than does the OBR. The discrepancy between the short term forecasts that drive judgements about fiscal and monetary policies is somewhat disconcerting; one might hope that, over time, each forecaster should learn from the other. And as things stand, the Bank of England appears to be closer in forecasting the growth spike than does the OBR.

The OBR report also provides a measure of the output gap, and this is now, at 1.4% of GDP in 2014, much closer to being in line with the Bank's assessment of the extent of spare capacity in the economy. Both measures remain low in comparison with most independent estimates, and hence support the view that a considerable portion of the government's budget deficit remains structural.

This last observation, of course, explains the continued caution of the government in producing a Budget that takes with one hand as much as it gives with the other. Work remains to be done to bring the public finances back into balance - views may differ about how much needs to be done, but it is clear that there is still some way to go. In any event, an expansionary Budget would, of course, have been inappropriate at a stage of the cycle at which growth appears to be surging ahead of trend.

The latest data from EEF (formerly the Engineering Employers' Federation) provide some very encouraging news. Much of the current recovery in the UK economy has come from increased consumer spending, and this has raised doubts about the sustainability of the upturn. But the new EEF data suggest that manufacturers are experiencing a substantial increase in orders for export - and that this increase is expected to accelerate into the next quarter. While the forecasts necessarily have an element of guesswork about them, if the export picture turns out to be close to the mark then it provides real cause for optimism.

There has, for some months, been some concern that the full cost of the new regime of tuition fees for undergraduate education in the UK was underestimated by the government at the time that it was introduced. The new regime raised the cap on tuition fees from a little over £3000 per year to £9000, and was designed to compensate universities for a severe fall in public funding - hence reducing the government's budget deficit.

On the surface, it seems obvious that such a change in policy would indeed reduce the deficit. Scratch beneath the surface, however, and things are not so clear. This is because student loans are repaid through the income tax system as a proportion of graduates' incomes. And if, 30 years after graduation, a graduate has not paid off the loan in full, the remainder gets written off. This means that some proportion of the total value of the loan book will never get repaid, and the burden of financing this will fall back onto the taxpayer.

This proportion has come to be known as the Resource Account and Budgeting (or RAB) charge. The RAB is an important figure, partly because it tells us how much of a discount needs to be offered when the government sells parts of the loan book off to the private sector. Estimates of the RAB have risen over time - in 2011, the government estimated a RAB charge of 30%, but the most recent official estimate is 40%.

The most recent estimates are uncomfortably high. The Higher Education Policy Institute has estimated that, if the RAB were to reach 47%, the new fees regime would be no more favourable to the government's finances than was the old. More recent research, published this month by London Economics, suggests a similar figure - between 48 and 49%.

If the RAB turns out to be in the high forties, then clearly the new fees regime will have missed in terms of its goal of bringing down the budget deficit. Even if turns out to be slightly lower, doubts must be raised about whether the current model of undergraduate financing is sustainable beyond the short term. Sadly we are a long way from realising Vince Cable's hope that the 'imaginary black hole will very soon disappear'.

The Confederation of British Industry (CBI) has put forward a set of proposals to strengthen the skills base in Science, Technology, Engineering and Maths (STEM) subjects. It notes that the UK is facing a skills shortage in these areas. One of its proposals is to reduce university tuition fees on some courses in STEM subjects.

Clearly it is important that players in the market for education should be aware of impending skills shortages, and that they should respond to them. Typically this is achieved through the market by employers raising wages for jobs where they face a shortage of labour - thereby attracting more workers into those jobs. Such a market mechanism bypasses the problems that might arise under a system of 'manpower planning' - where government tries to play the role of an omniscient planner, but often seems to lack the requisite information.

The proposal to reduce university tuition fees is problematic for a number of reasons. Not least, the current funding system for undergraduate education in the UK is one where loans are repaid out of future income streams - and crucially involves the writing off of any part of the loan that remains unpaid after 30 years. This means that students do not know how much of their loan they will end up repaying, and are therefore likely to be insensitive even to quite large fee discounts. There is evidence that students are responsive to the award of bursaries, but that is quite a different thing.

The devil is in the detail, and, while the aim of the CBI's proposal is worthy enough, the detail would frustrate that aim if it were ever to be put into practice.

Spring is in the air, and the economy is recovering. How far it will recover after the major shock it has suffered is still open to question. A generation ago, many economists spoke of 'hysteresis' - the tendency for blips in unemployment to become long-lasting owing to the depreciation of skills and the increased potential therefore for unemployed workers' attributes not to match well with those required by firms.

Alfonso Arpaia and Alessandro Turrini have evaluated a measure of such mismatch for some 22 European countries. These results show that the efficiency with which unemployed workers are matched with jobs fell in most of these countries quite soon after the economic crisis hit.

There are some interesting exceptions - efficiency has risen inexorably in Denmark. This may be the result of the 'flexicurity' of the labour market in that country - a system where extremely high degrees of job mobility are accompanied by a robust system of social security and active labour market policies. In Romania, too, matching efficiency has risen with just a bit of a flattening out in recent years. In many countries - especially those in Eastern Europe - the fall in matching efficiency followed a sharp peak, itself probably the result of introducing more liberal labour market policies following transition.

In the UK, the efficiency of matching fell sharply with the recession, and has not recovered since. Arpaia and Turrini's findings suggest that a high incidence of long term unemployment is one of the major factors underpinning this fall in efficiency. And in the UK, long term unemployment has risen markedly since the recession. At the end of 2007, there were 383000 workers who had been unemployed for over a year; although the number fell markedly in the last quarter of last year, there are now some 845000.

It would be easy, but facile, to contend that, with the unemployment rate falling rapidly, the labour market is functioning well. (It is in some respects, and is not in others.) For the market to maintain the flexibility that is needed, the matching of workers to jobs should be as efficient as possible. While long term unemployment rates remain high, this will not happen. Just as in the 1980s - when Richard Layard and others argued in favour of helping the long term unemployed back to work because doing so would not add to inflationary pressure - helping these workers now is an imperative. There is more to Denmark than good TV.

The size of the output gap is critical for determining the appropriate stance of fiscal policy, yet it has been the subject of considerable debate amongst economists. Some new data from the Office for National Statistics provide some instructive information.

On most measures the extent of spare capacity in the UK economy has narrowed over the last year. Measures based on qualitative survey data from firms tend to suggest a narrower gap than do quantitative measures such as employment data. The qualitative data are, by their very nature, harder to interpret; while they likely reflect practitioner perceptions quite accurately, it is difficult to explain why they should differ so much from the quantitative indicators.

Of the latter, it is particularly noticeable that the proportion of part-time workers who are unable to find full-time work remains high - as does youth unemployment. To the extent that such indicators reflect spare capacity in the labour market, the constraints (such as they are) appear more likely to be related to capital. Given the low levels of investment in the UK economy in recent years, this should hardly be surprising. As, with the recovery, investment picks up, so should capacity - this means that the potential level of output that is used in calculating the output gap is something of a movable feast.

In a nutshell, the capacity constraints faced by the UK economy are much softer than some observers would have us believe.

Redistributive government policies are widely assumed to be costly in terms of their effect on growth. The argument is that redistribution blunts incentives, so that most innovative and diligent people become less so.

That might well be the case, but it is far from being obviously true. The taxes and benefits that are used to redistribute income have both substitution and income effects - they change the return to each hour of work, thus tending to make work less attractive; but they also change the length of time that people need to work in order to achieve a given income, thus tending to make work more attractive. This means that their impact on how hard people work can go either way. While some economists hold doctrinal positions on this matter, in reality it is an empirical issue.

Recent work by Jonathan Ostry, Andrew Berg and Charalambos Tsangarides provides the empirical evidence. They find that, while in extreme cases, redistribution can be harmful (unsurprisingly enough), for the most part 'redistribution appears generally benign in terms of its impact on growth'. In statistical terms, they struggle pretty hard to get any significant results at all on their redistribution variable.

Incentives are no doubt extremely important. But to imagine that they work in only one direction is to ignore some pretty basic lessons from introductory economics courses. Oh, and the evidence.

The output gap has long been the focus of debate amongst economists, with estimates of the magnitude of this key policy-relevant figure varying widely. Sadly, one of the more useful sources of information on this, the English Business Survey, will shortly stop being collected. But the latest data from the survey are out today, and offer some interesting reading.

Across the whole of England, some 7% of firms report their capital as being underutilised. But this figure varies from just 4% in London to 10% in the South West. In two other regions, the North East and the West Midlands, the figure is 9%.

The present recovery is clearly one that has begun in the South East, and its spread to other parts of the country remains slow. The benefits of the upturn should be expected to spread more widely over the coming months. In the meantime, the output gap in large parts of the country remains substantial.