A London taxi driver told me last week that in his ten hours of ferrying people around London the previous day his average speed had been 8.4mph. This is slower than a horse or a bicycle and even slower than the 9mph average speed recorded by TfL in Central London at the start of this year. The cabbie blamed increasing levels of traffic, a rash of new building projects and Crossrail for the slowdown.

We love obscure economic indicators and this one suggests that, in London, at least, activity is picking up. But on a less parochial level, what are the prospects for recovery?

Things certainly have changed in the last six months. Financial markets now believe that a gathering recovery will force the Bank of England, the European Central Bank and the Federal Reserve to raise interest rates in 2013, much earlier than had been expected at the start of this year. The previously moribund UK housing market has strengthened so much that Vince Cable and the Royal Institution of Chartered Surveyors are worrying aloud about the risks of a housing bubble. It is a sign of the times that last week the Financial Times ran an editorial entitled, “Osborne wins the debate on austerity” which argued that a run of strong economic data had vindicated the Chancellor’s deficit reduction programme and confounded his Keynsian detractors.

After years of downside shocks the developed world is looking brighter. GDP forecasts for the industrialised world for 2014 have nudged higher, led by rising forecasts for Japan and the UK. GDP forecasts for the euro area as a whole have stabilised and, in Greece and Spain, are rising. Fears of a breakup of the euro have diminished, so much so that US investors have, this year, invested more money in European equities than at any time since 1977.

The near universal assumption is that growth in the industrialised world will bounce back in 2014 led by accelerating growth in North America and Europe.

As the West has started to recover worries about the performance of emerging market economies have mounted.

Expectations of rising US interest rates have led investors to withdraw capital from emerging markets in expectation of higher returns elsewhere. This has hit many emerging market currencies, particularly the Indian rupee which has fallen 25% against the US dollar in the last two years. In a reversal of the trend of recent years, equities in Europe and the US have outperformed those in developing markets in the last year.

We need to see this in perspective. Growth in most emerging market economies is running faster than in the West and is expected to accelerate. But the momentum of global activity seems to be edging away from the developing to the developed world.

We can see this in the rash of downgrades to growth forecasts for Brazil, Russia, India and China that have come through since the start of the year.

Risks in the global economy have diminished. The global financial system is on a gradually improving path. Fears that the euro would break up have eased and reform in the periphery of the euro area is delivering improvements in competitiveness. The US recovery is eroding America’s vast budget deficit. Markets are worrying less about economic weakness and more about the risk of early interest rate rises.

In May, the Chairman of the US Federal Reserve, Ben Bernanke, sent a chill through markets with a warning that the Fed was likely to slow the pace of its programme of Quantitative Easing in September and would end it by the middle of 2014. Yields on government bonds and market expectations for interest rates in the US and Europe have jumped since then, prompting fears that higher market interest rates could choke off the recovery.

In early August, the new Governor of the Bank of England, Mark Carney, sought to counter this involuntary tightening of policy by signalling that UK rates are likely to stay on hold for three more years. Markets were not convinced. UK base rates stand at 0.5% and financial markets are betting on this rising closer to the 1.0% mark by late 2014, to 1.5% by the end of 2015 and to 2.5% by the end of 2016.

Cheap money and the absence of big external shocks are working their magic. In the last few months surveys indicators of activity and confidence have picked up in much of the industrialised world. But for the recovery to gain legs it needs a virtuous cycle of stronger investment and consumer spending driving output which, in turns, fuels consumer incomes.

We are still waiting for this process to kick off. Consumer spending power is under pressure from high inflation and subdued growth in pay. Corporates may be cash rich, but 2013 has been a poor year for business investment.

We think this will start to change in the coming months. Barring further shocks, we expect to see growing evidence of a recovery in consumer and business activity.

This is unlikely to be the perfectly-balanced recovery so fervently hoped for by policymakers. Some of the hallmarks of previous lopsided recoveries are already starting to emerge - lower consumer savings, rising credit growth and higher house prices.

The reality is that the control policymakers exercise over the economy is very limited and imperfect. As a result policymakers will doubtless take the view that while balanced growth is better than unbalanced growth, either are far better than no growth.