With the shock news that the UK re-entered Recession on the 25th of April, many were predicting doom and gloom for the economy. Today the Business group CBI predicts that the pain will be short lived.
The group believes that the Governments figures regarding growth are suspect after many private organizations were posting positive results and were painting a more optimistic picture of the UK’s economic situation.
“The economy has been bumping along the bottom, and with the distortions from an extra bank holiday in the second quarter, is likely to stay that way until summer,” said CBI chief economic adviser Ian McCafferty.”Nevertheless, business surveys suggest that underlying conditions are starting to improve, and that we should see more momentum in the second half of the year.”
Elsewhere, the Bank of England has said it will be focusing more on underlying measures of economic activity, indicating that it will not inject any more stimulus into the economy when its current 325 billion pound quantitative easing program ends. This news should buoy the Pound in the currency markets.
The BoE is particularly worried that inflation is not falling as fast as it had hoped at the start of the year. Inflation ticked up to 3.5 percent in March, more than its predicted target of 2 percent. They had expected inflation to fall below target towards the end of this year.
The CBI reckons inflation will not hit the Bank of England’s target until spring 2013.
The outgoing head of the BoE Mervyn King was interviewed on BBC radio earlier today. During the interview, King admitted that the Bank of England should have “shouted from the rooftops” about the looming disaster during the good years, while insisting that the real culprits were the Labour government and the banking sector. He blamed Labour for the lack of regulations over the banking system and the banks themselves for becoming dangerously overstretched, he said;
“We were certainly late to the game in terms of understanding the scale of the fragilities in the banking system… but we were in good company. I remember that in the ten years before the crisis hit the UK had higher interest rates than any other G7 country for nine-and-a-half of the ten years.”
King’s argument that the Bank was merely culpable of not shouting louder has been questioned by several commentators this morning.
In Barcelona and under tight security the European Central bank is holding crisis talks over the worsening European situation. The ECB is set to maintain interest rates at 1% to encourage growth and to keep more loan repayments at a low level; however the ECB’s president Mario Draghi said that;
“Tension in sovereign debt markets and high unemployment rates are expected to dampen the underlying growth momentum”
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