Evan Davis BBC economics editor

It's not often that one could find a plausible argument for interest rates to go up, stay the same or go down, all at the same time.

But that is where we are with monetary policy in the UK at the moment.

With inflation well below target, the Bank of England's Monetary Policy Committee (MPC) could feel itself obliged to cut rates to get prices rising faster again.

But with consumers reportedly spending in a frenzy, and debt reportedly soaring, you might think higher rates will be needed to tame the boom.

Or, given these offsetting arguments, you might plausibly argue that rates should stay where they are.

Confusion

The confusion over the direction of policy might just be reflecting the confusion of commentators over the economy.

We swing between the deployment of the only two words people know on economics: boom and bust.

UK Interest rates

Jan 2002 4% Feb 2001 6% Seven cuts last year Now at 37-year low

The post 11 September declarations that we were falling off a cliff were premature; just as the declarations that Christmas retail sales are back to the 1980s are a little ahead of time - we do not even have the December sales figures yet, let alone the January ones which should always be included in the seasonal total.

So why is the UK economy so hard to call at the moment?

There are two important reasons. Neither gives us an insight as to where policy should move; but they do tell us why everybody's at odds and evens on the subject.

Changing direction

First, there is the fact that we have an economy moving at two speeds - consumer spending reasonably strong, and exports rather weak.

That would not matter for policy, which can appropriately focus on the average of the two, and can remain reasonably blind to internal imbalances.

But, if there is one thing we know it is that consumer spending at some stage will slow down (consumers will not run up debts forever); and very probably exports at some stage will pick up (the US can't languish in recession forever, and will start spending again sometime).

Timing

Now, everything depends on the timing of any change in direction of these two sources of spending.

UK economy The latest figures

Third quarter growth 2.1% Nov - annual rate of inflation 1.8% Oct - year-on-year industrial production -4.2% Oct - year-on-year retail sales +5.7% Third quarter unemployemnt 1.52 million 2001 house price inflation 11%

If consumer spending slows down before exports pick up, our two speed economy becomes a one-speed, slow economy (rates have to come down).

If consumer spending slows down well after exports pick up, we will have a one speed fast economy (rates have to go up).

And only if consumer spending slows down just as exports pick up, does the economy naturally glide towards nirvana on its own (with rates roughly where they are).

So, in terms of the two different pieces of the economy, the timing of any change in direction really matters, and yet it is the timing which is particularly hard to predict.

Sterling trouble

The second reason for difficulty in making a call on how the economy will progress is the exchange rate.

It is too high, and we might reasonably infer it will come down.

But that will have some effect on how high our inflation rate is.

Alas, we do not know what effect it will have.

A high exchange rate tends to lead to low import prices, and thus it exerts downward pressure on inflation.

It seems reasonable to infer that a falling exchange rate tends to push inflation up.

But how big are these effects?

Inflation concerns

On one theory, the exchange rate has little effect on inflation; companies keep their UK prices constant, notwithstanding the ups and downs of the pound.

If that is true, then a falling exchange rate will have little effect.

The MPC can relax, and need not worry about the falling exchange rate pushing up prices

But on the opposite theory, it is importers who have given us a dose of low inflation simply as a result of the high pound, and a falling pound will lead to higher inflation.

The MPC had better start worrying.

Today's low rate of inflation will disappear with the overvalued pound.

Stab in the dark

So two reasons why it's hard to make professional pronouncements on the economy at the moment.

Even though I personally subscribe to the view that economics reporters should offer an interpretation of events, as well as a mere reporting of them, I would be a brave man to venture much of a guess on two such fragile issues as the timing of consumer slowdown, or the responsiveness of prices to exchange rate movements.

But having exhibited that cautionary note, let me make a guess, just for fun as Peter Snow would say.

My gut instinct says consumer spending will fade more quickly than most people realise, and that the exchange rate has less effect on prices than most people think.

Both these arguments tend to suggest that warnings of higher interest rates to come are overdone at the moment.

Watch out over the next six months to see whether I am right.