"I am more optimistic" says Governor ...
No rise in base rates this week. The MPC voted unanimously to maintain Bank Rate at 0.1%. The target for government bond purchases was maintained at £875 billion. The corporate bond stock was on hold at £20 billion.
The total target stock of asset purchases remains at £895 billion. Just as well really. Total government debt increased to almost 98% of GDP. The quantum of solace hit £2.13 trillion. Not long before the Chancellor will have exhausted, his first trillion pound bank note.
The Governor is feeling more optimistic about the prospects for the year. The vaccination programme continues at pace. The slow down in the economy, in the first quarter, is better than expected. Restaurant bookings are increasing. Domestic holiday reservations are rising, (with prices to match). Consumer confidence is on the rise. Business confidence in manufacturing and construction is particularly high.
Asked what sort of recovery the UK could expect, Andrew Bailey said "I am now more positive but with a large dose of caution". "We now see upside risks to our January forecast", with some chance the peak in unemployment, may be lower than expected.
In January, the Bank were forecasting growth of 5% for the current year. An upward revision seems probable. 6% to 6.5% growth, seems possible this year. In the US and China, the revisions have already been made. The IMF forecasts of 5.5% world growth this year, already out of date.
UK gilt yields closed higher. Up by just two basis points in the week, at 0.84, the Governor commented "We have seen some increase in rates over the last month or so. My assessment so far, is this is consistent with the change in economic outlook".
Sterling closed lower at $1.3868. The test of the $1.40 level completed our eighteen month pattern. Uncle Sam's zloty is gaining favor. The siren's call of ten year bond yields, up nine points in the week, too much to resist.
In the US, the Fed held rates and maintained the asset purchase plan. The Fed is not yet ready to take away the punch bowl. Jerome Powell is topping up the punch bowl and handing out the spliffs ... check out today's update ...
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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