News Column

Bank talks up speed of recovery as FTSE climbs towards high: Data expected to show rising business confidence: Britain has fastest growth, Carney tells G20 summit

February 24, 2014

Katie Allen

Bank of England officials have been talking up the strength of the UK recovery as the latest round of business surveys show rising confidence and the FTSE 100 closes in on a record high.

Ahead of the publication of official data this week that is expected to confirm robust growth, Bank governor Mark Carney highlighted Britain's lead over other major economies after he attended the G20 summit in Sydney.

With the FTSE 100 index of blue chip shares about 100 points off an all-time high set 14 years ago, Carney sought to give much of the credit for the UK's recovery to his forward guidance policy. Under that scheme he had vowed not to consider an interest rate rise at least until unemployment fell to 7%. The jobless rate has come down faster than the Bank expected and in the face of criticism Carney overhauled the policy earlier this month.

The UK's recovery has been more rapid than most economists would have expected last year, when the ratings agency Moody's delivered a blow by stripping the country of its top AAA credit score. But the latest release of GDP data on Wednesday - expected to confirm a 0.7% expansion in the fourth quarter - will be scrutinised for any slowdown in the consumer spending fuelling growth.

The governor defended his first six months at the Bank as having shored up confidence with forward guidance. He told the Sydney Morning Herald newspaper that it was "hard to find a criteria by which you would not judge it successful".

Carney, who was in Australia for the G20 meetings, said: "I met over 700 businesses and the message went through loud and clear: it made them more keen to hire, and more keen to invest. We are now the fastest-growing major economy, we have the fastest employment growth on record, inflation back at target, and inflation expectations well anchored."

Carney's fellow Monetary Policy Committee member Ben Broadbent said that "after five years in which the UK economy has looked very sick, it is finally moving out of intensive care".

Writing in the Sunday Times, Broadbent said: "Few expected the economy to grow as quickly as it did last year. It is reasonable to expect both a continued recovery and, after a difficult few years, growth in real wages as well."

There is still some way to go before the economy gets back to where it was before the global financial crisis and there have been questions too - including from the government's own independent forecasters at the Office for Budget Responsibility - about the sustainability of a recovery largely fuelled by consumer spending. Howard Archer, economist at IHS Global Insight, said Wednesday's data might show that consumer spending growth slowed as households continued to grapple with squeezed budgets.

Stock market analysts predict further gains ahead for the FTSE 100, which at a Friday close of 6838.06 is nearing its record close of 6930 on 30 December 1999, the height of the dotcom boom.

After their strongest week since last summer, leading shares will get another boost this week as a pounds 49bn cash-and-share payout from Vodafone starts to reach investors' pockets.

There are tentative signs that growing confidence is encouraging businesses to invest, a development that policymakers say is vital to securing the recovery. Business surveys today will bolster hopes that hiring and investment are improving.

A report from business lobby group the CBI suggests optimism in the dominant services sector is rising at the fastest pace for more than a decade. The pick-up in confidence was widespread across the sector, the survey of 139 firms said.

Business volumes rose at the fastest pace since 2005 and profitability improved for the first time since 2007.

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Source: Guardian (UK)

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