UK recovering from financial crisis at last

Tim Wallace
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THE UK economy will pick up strongly this year, the Bank of England predicted yesterday, getting back to healthy growth into 2014 and 2015.

And inflation will not be quite as high as previously, falling back to or even below its two per cent target in 2015 or 2016, it forecast.

GDP is set to rise by 0.5 per cent in the current quarter, accelerating from the 0.3 per cent expansion in the first quarter and well away from recession territory.

Such growth is a big improvement on last year’s zig-zagging numbers, and appears to mark the start of a real recovery at last.

But there is still some uncertainty in the outlook.

“The main downside risk to the sustainability of the recovery continues to stem from events overseas, especially in the Eurozone,” governor Sir Mervyn King warned.

The Bank’s inflation forecasts were revised down a touch, with consumer price inflation now expected to peak at 3.1 per cent this year.

However markets are more sceptical, pricing in inflation of 3.1 per cent in the medium term and 3.5 per cent in the long term, five to 10 years ahead according to the Bank.

Meanwhile the US Federal Reserve was given a green light to continue its ultra-loose monetary stance, as new data pointed to weak growth and low inflationary pressures.

Producer prices across the pond recorded their sharpest fall in three years in April, according to one set of figures, while two other surveys pointed to a sluggish industrial and manufacturing sector. And in stark contrast to the UK’s burgeoning recovery the New York Federal Reserve’s widely-watched Empire State manufacturing survey dropped to a reading of minus 1.43 this month from 3.05 in April, disappointing economists who had expected a healthy rise.