Bank of England turns bullish on economy...

Bank of England Governor Sir Mervyn King, in his last economic growth forecast before retirement in June, turned slightly bullish and predicted that UK Gross Domestic Product (GDP) would grow by 0.5% during the current second quarter of 2013. He said: “Today’s projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago. The economy is likely to see a modest and sustained recovery over the next three years. That’s the first time I’ve been able to say that since before the financial crisis.”

However, there was a caveat, that the recovery would “remain weak by historical standards.” This reflects Sir Mervyn’s further comments that: “This hasn’t been a typical recession and it won’t be a typical recovery. Nevertheless, a recovery is in sight.”

Inflation has been stubbornly high – though it eased in April – having remained above its 2% target since 2009, and the BoE believes it will not return to this optimum level until 2015 or later. So, it has held back on its quantitative easing programme, as any expansion of it now could increase inflationary pressure.

Sir Mervyn added: “Monetary policy alone, however, cannot solve all our problems. There are limits to what can be achieved by general monetary stimulus in any form.”

Commenting on the BoE stance, the Chief Economist of the British Chambers of Commerce, David Kern, said: “We accept that growth is likely to remain positive, but we believe that the speed of the recovery will be somewhat slower than the Governor indicated.

“The grim eurozone data also shows that our exporters will face obstacles over the year ahead. We also think that the inflation outlook is slightly worse than the report suggests, and future falls in 2013 and 2014 will not happen as quickly.”

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