Bank of England report good news for a change

by Neil Patterson

13:17 PM, 22nd May 2013
About 7 years ago

Bank of England report good news for a change

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Bank of England report good news for a change

bank_of_englandI have been attending the Bank of England quarterly seminars since 2007 and was completely flummoxed by the opening statements reporting good news for a change.

They are confidently predicting consistent growth for the first time in a long while of 0.5% on GDP per quarter for the next year. This is however with the caveat that there are no negative unforeseen external influences such as a worsening of the European situation.

It does appear that the markets are showing more confidence over the European economy with 10 year bond prices dropping over the whole of Europe with even 10 year Greek bonds falling to 10%. What that means is the market must be reasonably confident that Greece will not default in the next 10 years or they would not get their money back. I am not so sure I would personally want to take that gamble though!

This new found confidence and our recent avoidance of a triple dip recession has not affected predictions for the Bank of England base rate to stay at 0.5% for at least 2-3 years. The economy is not seen as robust enough to sustain the negative growth influences of a rate rise and the underlying inflation figures once you strip out the regulated sector are under the target of 2% reducing any perceived pressure to increase rates.

The Bank is targeting continued improvements to availability in the mortgage market, which is being assisted by Guaranteed Loan schemes. However they are cautious that real sustained long term improvements in supply can only be made by a healthy competitive market place and we should try and avoid the reliance on guaranteed schemes that the Americans are finding hard to now replace with the free banking system on its own. Any return to a more competitive mortgage market should be good for Buy to Let investors as lenders will naturally diversify and fill the supply gap in more profitable areas such as Buy to Let.

The Bank of England have recently paid for a consultant statistician from America to look at their figures and simplify their reports. This can be seen in the GDP  chart below showing fewer and wider bands for predicted growth over the next few years.

GDP

 



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