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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Eurozone - how the markets are responding...

With the focus back on the Eurozone and the markets responding. Experienced Independent Financial Advisors Enable know it can be a worrying time. It’s interesting to see that when EU officials are doing their utmost to make banks slim their balance sheets, analysts have done the unthinkable and imagined what life would be like if European banks merged into a megabank.

The analysts at research provider CreditSights created the megabank by combining the most recent quarterly accounts of 22 banks: Commerzbank, Royal Bank of Scotland, HSBC, Lloyds Banking Group, Societe Generale, Danske Bank, Svenska Handelsbanken, Credit Agricole, BNP Paribas, Barclays, Banco Comercial Portugues, Banco Bilbao Vizcaya Argentaria, ING, Intesa Sanpaolo, UniCredit, Banco Santander, Credit Suisse Group, UBS, Nordea, SEB and Deutsche Bank.

The gargantuan beast would have a balance sheet of some €23.7 trillion with gross loans of €9.2 trillion at the end of June this year.  CreditSights estimated that Megabank would account for about 50% of the European banking sector, making it a “good proxy for the sector [that] illustrates trends across the region's banking industry”.

Although there are a handful of banks still reporting low double digit numbers for return on equity, the average RoE for Megabank was 4.9% in the first half of this year, according to CreditSights. Many banks had produced RoE numbers in excess of 20% in the years leading up to the 2007 financial crisis. Enable can offer independent financial Advice to help improve the digits return on your equity.

Eurozone crisis – it’s hard not to worry

It’s hard not to worry about how a break-up of the Eurozone would affect all of us, but ultimately some believe it could help the UK after the short-term pain from the event.  Enable, experienced independent financial advisors know that it often pays to take the longer term view.

Research by the Centre for Economics and Business Research says the demise of the European currency would drive down the UK’s GDP growth in the year following the event but argues that the overall consequences would be less severe than many commentators suggest.

The study predicts that within five years of the euro’s break-up, the UK would be “at least as well off” as it would be if the region survived its ongoing debt crisis intact. Although the ‘think tank’ concedes that the collapse could drive the UK back into recession, the following growth is likely to be stronger than before.

 In its assessment of the cost of a euro break-up, the Centre for Economics and Business Research (CEBR) said the UK would experience a 0.5 per cent reduction in gross domestic product (GDP), based on GDP in the Eurozone contracting 2 per cent as a whole.
 “If it breaks up the immediate pain is much more intense, but then there is a more stable basis and we would expect that within about 30 months growth will actually be faster than if the Eurozone survives in its current form,” states the CEBR.