Is Britain Back?

Paul Krugman and The Economist's Free Exchange blogger are beginning to think so. As is Daragh Maher, FX strategist at Calyon, who believes that sterling has become "the recovery currency":

Policy stimulus is helping drive a recovery in the UK. The catalyst for a re-think on sterling is already evident with early signs of improvement in the economic cycle and the financial sector.

The latest signs of health are coming from the services sector, which is growing at its fastest pace in over a year. Markets have been rapidly buying up Sterling, which has reached a 9-month high:

Alas, not all are buying the line on Britain's recovery. including The Economist's other economics blogger, Buttonwood, who is "still sceptical" of the rebound in the British housing sector, which is key to a sustained recovery:

Why is the rebound occurring at all? First, few houses are available; a lot of sellers are sitting tight. Second, there are some cash buyers around. According to Savills (an estate agent), around 40% of current homebuyers have cash (ie they do not need to sell their existing properties), up from 23% in 2006 and 2007.  There must be a limit to the number of people sitting on cash, while there is virtually no limit on the number of sellers who may emerge if they believe prices are rebounding. So the rally may choke itself off.

Britan's economy is disproportionately dependent on financial services, and had/(has) one of the most inflated housing bubbles. It is surprising to see it discussed as the first developed economy to emerge from the crisis. 

Yet, the Bank of England and the Brown government took aggressive policy actions early on in the crisis, and they may be paying off. The precipitous drop in the pound last fall gave a much needed boost to British competitiveness, and helped improve the national trade balance.   

Will these mechanisms be enough to turn things around for Britain?  If not, as goes the Rock, so goes the nation? 

Update: The Bank of England is not convinced that the worst is over; rather, "the recession appears to have been deeper than previously thought."

Update 2: The Guardian has constructed a fascinating dateline of the Bank of England's spiral of quatitative easing