UK economy is ‘in recovery’ – Bank of England Governor, Sir Mervyn King
There is a “welcome change” in the UK’s outlook as latest estimates reveal faster growth and lower price increases than projected three months ago. “That is the first time I have been able to say that since before the financial crisis”, Sir Mervyn King told journalists at a press conference earlier this week.
The Bank of England has raised its forecast for GDP growth to 0.5% percent, an increase from its previous estimate of 0.3%.
The governor’s optimistic outlook is shared by S&P, a ratings agency, which recently declared that it will uphold its AAA credit rating for the UK after its rivals downgraded the country to AA+.
The Bank’s positive growth projections also coincide with a strong push in confidence by UK businesses. According to ICAEW, the accountants’ trade body, business owners’ trust in Britain’s economy rose by 3.9, compared to last February, reaching a one-year high of 16.7 (100 being the highest). Surveys indicate that business confidence is rising in all regions of the country and across all sectors.
Consumer confidence, however, while picking up slowly, remains nearly unchanged at a low level of -27, compared to a year earlier in the same period. Market observers see the latest drop in real wages and the steady increase in prices as the main causes of depressed spending.
The central bank’s inflation forecasts project a peak in price increases well above its 2 percent target, though at a lower pace than anticipated in February. Chancellor of the Exchequer, George Osborne, has lately granted the BOE some leeway in its goal to meet the inflation target, which the Chancellor told Parliament “is a necessary but not sufficient condition for prosperity”.
The Bank of England Governor has come to share the Chancellor’s belief. With a view to the UK’s extensive bond-buying programme, worth 25 percent of GDP, he argues that alternative monetary policy tools should not be taken off the table. While monetary stimuli are at odds with classical inflation targeting, the Governor advocates linking both approaches so as to not depress growth caused by a rapid return to fixed price levels. “Monetary policy continues to perform a difficult balancing act”, he added. Analysts believe that the incoming BOE Governor, Canadian central banker Mark Carney, by whom King will be succeeded next month, could further stretch the inflation target and embrace other policy goals instead.
UK growth surpasses rates registered in most Eurozone countries. According to Eurostat, GDP growth in the euro area is down by 0.2 percent, compared to February 2013, and 1 percent down compared to twelve months ago. Uncertainty in the Eurozone might, according to CBI Director-General John Cridland, hamper investment intentions of UK businesses. As Europe fails to restore growth and combat unemployment this might put downward pressure on the UK’s economy with the euro area being Britain’s biggest export market.
“Nevertheless, a recovery is in sight”, King concluded.
