Economic Update from the Bank of England

From a business owners perspective the most damaging aspect of our troubled economy continues to be weak demand for goods and services. Demand after all drives growth in businesses and ultimately employment. But is the tide now, finally turning as the Governor of the Bank of England suggests?

The latest economic update from the Bank of England offers a positive revised forecast on growth and inflation. The Bank even hints recovery is in sight. The latest prediction is for a modest but sustained recovery over the next 3 years. Yet some think these predictions are a little rosy, and perhaps don’t take into account, fully, what’s happening in the Eurozone.  France has just tipped into a recession and the Eurozone as a whole has been shrinking for 18 months.

So what do we make of the latest update?

We would draw your attention to the latest UK unemployment figures. It’s true the number on Jobseekers Allowance fell in April but these figures are eclipsed by the upswing in unemployment figures for the last quarter. Any prediction of growth off the back of this has to be cautious. Inflation is now expected to move below 2% (as opposed to 2.3%) within 24 months and growth this year is now predicted to be over 1% rather than 0.9%.

Some commentators suggest the new figures don’t take sufficient account of the Eurozone crisis making life particularly difficult for exporters and that inflation will not fall at the pace predicted.

Perhaps it’s the outgoing Bank of England’s Governor who himself put his finger on the crux of the issue. This week he said monetary policy alone could not fix all the UKs economic problems. If there is a limit to what that it can achieve alone, it seems the rest is down to the politicians.

Earnings play a role in recovery tool: For the foreseeable future average earnings (excluding bonuses) will be lag behind inflation. In fact earnings are growing at their slowest rate in more than a decade. People don’t feel well-off, and that is likely to subdue demand at home.

All eyes will now turn to the incoming Governor to see if there is any marked change in policy and that itself brings an air of uncertainty to proceedings. Precisely what the economy can do without.