Signs point to Britain being on the cusp of economic fightback

Gary Duncan, Economics EditorBritain appears to be on the verge of economic recovery amid signs that the worst downturn in decades may be coming to an end.

 

Manufacturing output and house prices rose and the service sector yesterday reported its strongest spurt of growth for 17 months.

The upbeat data prompted speculation in the City that the Bank of England would give a further sign today that the economy is on the mend and end its policy of quantitative easing, the process of injecting money into the economy to encourage growth, which has so far cost £125 billion.

Business leaders made last-ditch pleas to the Bank to do more to guarantee a decisive economic resurgence, but many City experts were betting that it would show its confidence in an early end to recession by putting the scheme on hold at noon today.

Mervyn King, its Governor, is expected to take a cautious stance when he gives his latest assessment of Britain’s economic outlook next week. He is likely to voice growing faith in a short-term upturn, but warn about dangers that could yet derail recovery.

The positive news on the economy will be welcomed by Gordon Brown, whose hopes of keeping Labour in power at the next election will largely depend on the economic outlook.

Sushil Wadwhani, a former member of the Bank’s rate-setting committee, told The Times that it should halt the policy for the moment. “The short-term economic outlook is strongly positive,” he said.

Dr Wadwhani, who also sits on The Times’s panel of economic experts, is usually noted as an advocate of aggressive moves to boost growth, but he said that printing more money could cause an unwarranted inflation scare.

Official figures showed that Britain’s factories and utilities increased their output by 0.5 per cent in June, turning in their strongest showing since October 2007.

Halifax said that house prices rose by 1.1 per cent last month, the second rise in three months, suggesting that the worst of the housing slump was over. The Nationwide Building Society last week suggested that house prices had risen by 1.3 per cent in a month, their third monthly increase in a row. Figures released yesterday by Taylor Wimpey, Britain’s biggest housebuilder, also indicated that the market was through the worst.

However, the Royal Institution of Chartered Surveyors forecast that an acute shortage of homes for sale would push prices up this year, but it warned that the market had not yet hit the bottom and that prices could start falling again next year as more homes were put on the market.

Confidence in a wider economic rebound was fuelled by the crucial survey of services businesses, which make up two thirds of the economy. The survey, closely tracked by the Bank of England, showed that the services sector grew for a third month in a row, and at its fastest pace since February last year.

The optimism has been emphasised by the steep gains on the stock market over the past month. The FTSE 100 index ended yesterday down by a modest 24.24 points at 4,647.13, but up 1,135 points — or almost 33 per cent — from a low of 3,512 at the start of March. The pound traded at $1.70, its highest level for nine months, before falling back slightly. (Gary Duncan, The Times) http://business.timesonline.co.uk/tol/business/economics/article6740813.ece

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