Easy on the stimulus, green shoots are emerging In July, manufacturing output bounced back strongly from June - which was heavily affected by the Jubilee holiday - though it remains slightly down on a year ago. In services, which is much larger than manufacturing, there is stronger evidence here of underlying growth. Since 2010, services output has been rising by just over 1pc a year and the latest figures point to an annual growth rate close to this rate. The second set of indicators that help short-term tracking of the economy are from the labour market - employment and unemployment trends. Here the picture has been surprisingly positive in recent months, with the total number of jobs up by 236,000 in the past three months, and unemployment dropping back after rising last year. Other figures from the labour market point to an improving picture - falling redundancies and rising vacancies. This labour market picture is therefore also consistent with a growing economy. The third key measure I watch is retail sales, which is a good barometer of consumer spending - the largest single component of demand in the UK economy. Again, the latest figures point to growth. In the past three months, official estimates of the volume of retail sales (excluding motor fuel) show a rise of around 3pc on a year ago - as the inflation squeeze from last year has faded and retailers have been discounting heavily. The CBI's latest retail survey points to growth being sustained in September - though at a subdued rate. The CBI's retail survey is just one of a wide range of business surveys that help in the tracking of the UK economy, and this is the fourth area I focus on to gauge the short-term progress of the economy. Some business surveys have been surprisingly positive recently, such as last month's purchasing managers" index of the services sector - which showed the strongest growth for five months. The CBI's September industrial survey also points to modest growth over the next few months in manufacturing. By contrast, the picture from the construction sector is more downbeat. But for the economy as a whole, the latest business surveys are more consistent with slow economic growth, rather than stagnation or decline. And next week will see important new business survey information from the purchasing managers" surveys and the British Chambers of Commerce. So what should all this suggest to the Monetary Policy Committee (MPC) when it meets later this week to consider its next move on interest rates or quantitative easing? First of all, the economy appears to be starting from a stronger position than the latest GDP figures suggest. Also, if the view of modest underlying growth suggested by the more recent indicators is correct, there could be quite a strong rebound in the official measure of GDP in the third quarter - reflecting both underlying growth and recovery from a figure that was artificially depressed by the Jubilee holiday. A second point for the MPC to reflect on is the way in which the drop in inflation has helped to support consumer spending in recent months. The drop in CPI inflation from 5.2pc to 2.5pc has eased the intense consumer squeeze we saw last year. However, UK inflation is still above target, as it has been since 2006 - with the exception of two brief periods. A further fall and a sustained period of below-target inflation would provide further relief to UK households in the current environment of low wage growth. The prevailing view driving MPC decisions in recent years has been that deflation, rather than inflation, has been the main threat to growth. But the UK's experience has been in the opposite direction. It was the large spike in inflation last year that squeezed consumer spending so heavily. And it is the fall in inflation that is now providing relief to consumers. Inflation is the biggest threat to growth in the current environment when incomes are rising slowly - not deflation. Much of our recent inflation has been driven by rising energy and commodity prices, which have had a negative impact on other major economies, too. But the UK has suffered more from recent energy and commodity price rises because of the large fall in the pound that occurred during the financial crisis. And the recent fall in inflation has been helped by the pound rising against the dollar and the euro, holding back import prices. In the past year, sterling has appreciated by more than 6pc against our trading partners. It is quite possible that as we move through this year and into next, we will face another surge in energy and commodity prices. The US drought and other global climatic events are pushing up food prices. And if China and other Asian economies succeed in reinvigorating their growth, the price of oil and other sources of energy will be on the rise again. If these pressures do emerge, the MPC should be looking for a stronger pound to protect the UK economy against imported inflationary pressures. That would be a major shift in policy from the current stance of promoting a weak currency to support the rebalancing of the economy - which has not been effective. It is a much broader set of policies aimed at supporting wealth creation and internationally competitive business that will underpin a healthy rebalancing of the UK economy, not short-term movements in the sterling exchange rate. The MPC's current programme of QE has a month to run - so we should not expect any major decisions at the October meeting. But in November, unless there are further major shocks, the current round of QE should come to an end. If the economy is growing modestly and inflation is still too high, the case for further stimulus is weak. And further monetary loosening is more likely to push down the pound than to support it, as market worries about future inflation grow. Andrew Sentance is senior economic adviser at PwC and was a member of the MPC from 2006 to 2011.