Has dawn broken over Britain’s economy?
Bank of England Governor Mark Carney said on Thursday he was wary of another “false dawn” for Britain’s economy, but economists polled by Reuters are generally more optimistic.
The poll, published on Wednesday and taken ahead of an unexpected fall in unemployment, said the economy would expand a relatively healthy 0.7 percent in the current three month period and then by 0.5 percent per quarter through to early 2015.
And that comes after better than expected 0.7 percent growth in the second quarter.
None of the 34 economists polled forecast another recession anytime soon.
“The UK economy is rebounding with broad-based strength being exhibited by business surveys, retail sales reports and housing data. The economy is also adding jobs,” economists at ING said in a note to clients.
“And with inflation already well above target, the Bank of England’s assertion that rates will be on hold for possibly three years is being questioned by the markets.”
Strong economic data has caused financial markets to push up long-term borrowing costs and bring forward bets on when the BoE will increase interest rates, raising doubts about Carney’s new policy, which aims to stop expectations of higher rates choking off recovery.
At the moment, the poll consensus for the next rate hike sits somewhere between the market, which has priced in a hike late next year, and the Bank of England, whose policy is tied to an assumption it will take at least three years for the jobless rate to fall to 7 percent.
But if data continue to come in suggesting a strong UK recovery, then it will surely only be a matter of time before economists too bring forward their rate hike expectations, which would leave the Bank of England looking a little lonely.
Of course, Carney is probably right to be cautious.
No economist polled by Reuters in 2008 spotted Britain’s worst post-war recession until it was underway, and have largely overestimated Britain’s tepid growth prospects ever since it returned to growth in late 2009.