BOE Lacks Case to Expand U.K. Stimulus Program, CBI Says
“In my judgment, the underlying trajectory for the British economy remains the same despite these occasional knocks,” CBI Director-General John Cridland said in an interview yesterday. “It’s not obvious to me that there is a strong case for more QE at the moment.”
Bank of England policy makers will decide on May 10 whether to increase the size of their bond-purchase plan amid conflicting signals on the economy. Governor Mervyn King said late yesterday that the recovery is proving slower than expected, though inflation is “still too high.”
Cridland said he’s “cautiously optimistic” about the economy and doesn’t see evidence of a “prolonged downturn.” He said data last week showing gross domestic product fell in the first quarter were at odds with anecdotal evidence from companies that confidence is improving. He said the economy will probably rebound in the second half.
While the 0.2 percent drop in GDP in the first three months of the year pushed Britain into its first double-dip recession since the 1970s, rising oil prices threaten to stoke inflation. The GDP figure prompted the CBI, the U.K.’s biggest business lobby group, to cut its 2012 growth forecast today to 0.6 percent from 0.9 percent in February. It forecast 2 percent expansion in 2013.
While “the second quarter is going to be close to flat,” GDP will grow 0.7 percent in the following three months and 0.5 percent in the fourth quarter, Cridland said.
‘From From Over’
“The present crisis is far from over, as events in the euro area illustrate weekly,” King said in a speech in London. “Our own economy is still not back to health. Although inflation has fallen back in recent months, it is still too high.”
Data this week showed U.K. construction growth slowed less than forecast last month, while expansion in manufacturing eased more than estimated. A report today may show activity in services, the largest part of the economy, also cooled.
A separate survey today showed that while U.K. business confidence dropped last month, it is still at levels consistent with growth, according to Lloyds Bank Corporate Markets. Its index of companies’ economic optimism fell to 26 from 31 the previous month, when the gauge increased 30 points, the unit of Lloyds Banking Group Plc said.
Bank of England officials will decide next week whether to expand their bond-purchase program or halt it at 325 billion pounds ($526 billion). They have left the benchmark interest rate at 0.5 percent, a record low, since early 2009.
“They’ve got a lot to get their head around,” Cridland said. “The evidence is clear that we’re not going to see any change in interest-rate policy this year. It will probably be well into next year before it will be sensible for the bank to begin to change that.”
The CBI chief also commented on recent speculation on who might replace King when he steps down next year.
“What we need is somebody who has the ability to connect with the City, connect with the banking community,” Cridland said, referring to London’s financial district. The job requires someone who can “look them in the eye, have the tough conversations, but also have a strong understanding of the needs of the banking sector.”
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