Bank of England turns bullish on economy
Bank of England Governor Sir Mervyn King, in his last economic growth forecast before retirement in June, turned slightly bullish and predicted that UK Gross Domestic Product (GDP) would grow by 0.5% during the current second quarter of 2013. He said: “Today’s projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago. The economy is likely to see a modest and sustained recovery over the next three years. That’s the first time I’ve been able to say that since before the financial crisis.” However, there was a caveat, that the recovery would “remain weak by historical standards.” This reflects Sir Mervyn’s further comments that: “This hasn’t been a typical recession and it won’t be a typical recovery. Nevertheless, a recovery is in sight.” Inflation has been stubbornly high – though it eased in April – having remained above its 2% target since 2009, and the BoE believes it will not return to this optimum level until 2015 or later. So, it has held back on its quantitative easing programme, as any expansion of it now could increase inflationary pressure. Sir Mervyn added: “Monetary policy alone, however, cannot solve all our problems. There are limits to what can be achieved by general monetary stimulus in any form.” Commenting on the BoE stance, the Chief Economist of the British Chambers of Commerce, David Kern, said: “We accept that growth is likely to remain positive, but we believe that the speed of the recovery will be somewhat slower than the Governor indicated.
“The grim eurozone data also shows that our exporters will face obstacles over the year ahead. We also think that the inflation outlook is slightly worse than the report suggests, and future falls in 2013 and 2014 will not happen as quickly.” Markets (May) (Data supplied by the Outsourced Marketing Department) Having reached impressive levels given the economic backdrop, global equity markets became nervous at times during late May as investors tried to make sense of mixed financial data. The UK stock market saw a correction on 23 May, when the FTSE100 lost 2.1% as it retreated from a 13-year high. It still ended the month up, by 2.4%, at 6,583.1, whilst the FTSE250 closed at 14,350.9, up 2.9%. The AIM market put on 3.3% to finish at 729.9. In New York, the Dow Jones avoided major gyrations to reach a new high of 15,409.4 on 28 May. Falling back 208 points on the last day, it still ended May ahead 1.9% at 15,115.6. The Nasdaq ended 3.8% higher at 3,455.9. European bourses had bouts of nerves that impacted the Eurostoxx50, but it managed to finish the month some 2.1% to the good at 2,769.64. Nervousness was most acute in Japan, where a 40% rise in the Nikkei during 2013 had left Tokyo vulnerable to profit-taking and price correction. A one-day fall of 7% exposed the market’s fragility, but a modest rally on 31 May helped the battered index end the month at 13,774.5, just 0.6% lower – and still 61% higher than 12 months earlier. The dollar strengthened on the foreign exchanges, firming 1.5% against the euro, to $1.30, and nearly 2% against sterling, to $1.52. Sterling weakened slightly against the euro, to €1.17. On the oil market, Brent crude spent most of May hovering just above $100 and closed almost 2% down, at $100.39. Gold continued to lose its glitter and, after dipping down near $1,340 mid- month, it ended 5.6% lower, at $1,388.21. Download full report here