Is Britain’s recovery too good to be true?Lea Jakobiak
There was more good news for the UK economy this Wednesday; the unemployment rate dropped to 7.1 percent during the three months to December - the biggest ever quarterly increase in employment. And the IMF this week raised its forecast for the UK economy; it now expects it to grow 2.4 percent this year which is faster than any other major European economy.
Whilst Nick Beecroft, Chairman of Saxo Capital Markets UK, says he is “optimistic” about Britain’s recovery, he has three concerns:
1. The recovery is too dependent on consumer spending. Nick says that in order to feel "really" comfortable about the recovery, he would like to see growth in business investment ans well as consumer spending.
2. The pound is too strong. Nick says sterling, which is at a five year hjigh against the dollar, is getting too strong for the sake of the recovery. The Bank of England is now starting to get concerned about it too. Nick warns there could even be more strength to come, unless we see an adaptation of forward guidance.
3. Bank of England could lose its credibility. Nick is worried there is now a risk of credibility for BoE Governor Mark Carney. If he wants to keep rates lower but keep the threshold at 7 percent, people may start to ask what value it actually has.
The Bank of England has said it will consider increasing interest rates from the current record low of 0.5 percent when the unemployment rate falls below 7 percent.