Some economists and politicians may be predicting green shoots of recovery but at the coal face leading British business people are warning that life remains tough. As Alistair Darling prepares Wednesday’s budget based on the key themes of jobs and recovery with the knowledge that the FTSE has rebounded by some 16 per cent since the beginning of March, retailers and traders painted a cautious picture.

Some key indicators are pointing towards recovery and confidence was boosted this week with the news that China’s economy had picked up. Britain’s biggest tour operator said people were now booking their summer holidays in earnest after a very quiet start to the season.

Peter Long, chief executive of I Travel, whose brands include Thomson and First Choice, said that, although the economic environment was more uncertain than this time last year, people had more money in their pockets because of reduced mortgage payments and drops in food and energy costs.

He told The Times: “The trading environment continues to be challenging, but we are encouraged that demand in recent weeks has strengthened in most source markets. We’re in a recession but my sense is that we are coming through it and are not heading into a depression. There’s still a long way to go, and it won’t be an easy journey, but the core of our customers will still go on holiday.”

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Ralph Findlay, chief executive of pub operator and Pedigree brewer Marston’s, confirmed the mixed picture. He said: “It’s far too early to call a turnaround. We have seen an improvement in the last eight weeks, but the market is still fragile and could be upset quite easily by a shock from an unexpected quarter.”

Retailers historically have been among the first to feel the effects of a recession but, as consumer confidence is restored, tend to recover earlier. But many shopkeepers fear that mounting unemployment will have a greater impact on spending than rising disposable income, which is increasing because of the dramatic reduction in interest rates and lower inflation.

Marks & Spencer surprised the City with news stronger-than-expected trading at the company’s last update.

Others are also, tentatively, hinting that things may start to improve from here. John Lewis, Britain’s biggest department store chain, yesterday reported its best weekly sales figures of the financial year – with sales in the week to last Saturday just 1.5 per cent down on the same week last year.

Andy Street, managing director, said: “The worst point was probably last autumn – when the financial crisis caused such a serious dislocation to confidence. Nevertheless, we do not expect sales to start growing again until 2010.”

Derek Lovelock, chief executive of Aurora Fashion – which owns the Oasis, Coast, Karen Millen and Warehouse fashion chains – said: “In the last few weeks, as fashion retailers certainly, things have been better. That’s not the economy, that’s circumstances. But there’s no doubt there’s a general feeling things are slightly better. Anything that makes the consumer feel better is to be welcomed.”

The cautious optimism in some quarterswill provide a boost for Alistair Darling as he puts the final touches to the Budget “for jobs and recovery”, building on last November’s efforts to fight the recession through a £20 billion stimulus to the economy.

But Mr Darling’s careful hopes of a return to growth will not mask the parlous state of the public finances and the extreme severity of the measures needed over the next few years to restore them to respectability.

He is expected to announce that the economy will contract by 3.5 per cent this year and that annual public borrowing will soar to £175 billion over the next two years, the most dire deficit in modern times.

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