British economy edges slowly towards an upturn


The British economy continued its painfully slow progress towards recovery with a further flow of modestly encouraging news yesterday. The release of the latest data on the jobs market, the construction sector, and on consumer confidence showed a further improvement, albeit from low bases and with a mixed pattern of progress on the disastrously bad trend seen over the recession.

The Chartered Institute of Purchasing and Supply's (CIPS) latest survey of sentiment in the building trade, which comprises around 6 per cent of the economy, showed a modest improvement in levels of optimism. However, David Noble, the chief executive officer at CIPS, urged caution: "Whilst the current situation still looks very bleak, an upturn looks much closer than it did just a few months ago. However, times are still tough as steep competition and difficult market conditions pushed the sector into its 17th month of retrenchment. Indeed, one area of concern is residential construction which has fallen back dramatically after showing recent signs of improvement."

Over a quarter of construction firms said they had sacked staff during July, a confirmation that the labour market remains extremely difficult.

The latest "Report on Jobs" by KPMG and the Recruitment and Employment Confederation also suggested that there had been a disappointing acceleration in the decline in permanent employment, although the fall in temping opportunities had slowed to their most moderate rate in 10 months, in line with official data.

The rise in unemployment has been one of the most depressing influences on consumer sentiment in recent months and the nationwide Consumer Confidence Index, also out yesterday, revealed only a small improvement during July.

The Nationwide said that confidence in making a large purchase actually fell in the month, with the percentage of people agreeing that "now is a good time to buy a major item, such as a house or car, decreasing from 40 per cent in June to 35 per cent".

However, confidence in spending is strong in comparison with this time last year, when only 17 per cent of people felt it was a good time to make a major purchase.

Bank of England 'to hold rates at record low'

THE Bank of England is expected to leave interest rates at a record low 0.50 per cent tomorrow, but experts are unclear about whether the central bank would extend its credit-easing plans.

The BoE's rate-setting Monetary Policy Committee (MPC) kicks off its crucial two-day gathering on overnight against the backdrop of Britain's worst recession since the early 1980s.
"The MPC will... go into its meeting this week with little assurance that either money or lending growth is showing the improvement necessary to turn the fragile signs of economic recovery into a strong and sustained upturn,'' said Capital Economics analyst Roger Bootle.
"We still expect the committee to announce a £25 billion ($50.1 billion) extension to quantitative easing (QE).''

Under QE, central banks purchase government bonds from commercial insitutions in the hope of kick-starting lending to businesses and individuals and hauling the country out of a deep downturn.

Up to now, the BoE has injected £125 billion in the QE initiative that is designed to crack the credit crunch and help lift the nation out of a sharp downturn.