It looks like Britain might have to wait a while longer before its much-touted export recovery materialises.
Bank of England rate setters meeting this week should be in cordial agreement that Britain’s economy is growing at a decent pace, and that price pressures look mostly in check at the moment.
On the face of it, the good news for the British government keeps on coming. Britain’s economy grew surprisingly fast last year and inflation fell below the Bank of England’s target for the first time in over four years in January. The government this month even got a nod from the International Monetary Fund which only last year criticized its austerity programme.
British inflation dipped to 2 percent in December – its lowest since November 2009 and within the Bank of England’s target. Part of the move was driven by a fall in prices in Britain’s services sector – which constitutes more than three quarters of the country’s output.
Although UK house prices will head steadily higher in the next two years, analysts polled by Reuters are divided over whether the Bank of England can restrain the market if it overheats. Here’s what they said in the latest Reuters poll, taken this week:
There are many unknowns surrounding a Scottish vote in favour of independence at next year’s referendum, a potentially huge event for the British economy. But one that has attracted little attention is what it would mean for UK interest rates.
While debate rages on whether or not Britain is heading into a new housing bubble, here’s a Reuters poll from 1999 that asked the same question. The answer then was, “No, this time is different”, and it featured a lot of the same arguments we’re hearing today.
Britain’s economy is steaming ahead – by one measure faster than any other large developed or emerging economy – but history suggests it will struggle to sustain the rapid growth indicated in business and confidence surveys.
Central banks in Europe have followed in the Federal Reserve’s footsteps by adopting “forward guidance” in a break with tradition. But, as in the Fed’s case, the increased transparency seems to have only made investors more confused.