WITH ministers on holiday, opposition "doom and gloom merchants" have perhaps had more leeway than usual to spread alarm over the the economy. But the encouraging figures on jobs and inflation, with which the government clobbered them last night, do not mean that, beneath the Tory hype, there is no cause for concern.

Yes, unemployment has plunged to its lowest since 1980 and the economy, despite the strains it is under, is still creating jobs.

And, true, there has been some easing of the upward pressure on inflation caused by "too high" pay settlements - so the Bank of England may hold fire with the "cure" of even higher interest rates that hit exporters and cost jobs.

But if these signs reduce the prospect of recession and blunt the efforts of opposition politicians to exaggerate this for political gain, the realities at present are that there is a worrying contagion at work in the economy that is undermining manufacturers in particular. For today we see hundreds of jobs being axed in firms across East Lancashire - a trend that is reflected countrywide. And the common factor is the harm that done to exports and by cheap imports because of the the strong pound, buoyed as it has been by the Bank's repeated doses of the anti-inflation interest-rate medicine.

The frank assessment of Employment Secretary David Blunkett that the economy is still on the knife-edge of as plunge into recession is perhaps closer to reality than the boosterism of some of his colleagues.

And though new jobs are being created to offset the losses in manufacturing induced by the strength of sterling, unless the Bank signals that interest rates have peaked, the government should say that they ought to start coming down.

For without such a move, regions such as ours, which are more dependent on manufacturing than others, will lead the slide into recession. Indeed, despite the officially sunny economy, action is needed now to dispel the clouds that have already gathered.

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