Economic growth forecasts showing improvement

The British economy has been through several months of upheaval since the recession, but the flow of positive economic news is starting to run a bit stronger of late.

Among the latest round of updates is an improvement in the Organisation for Economic Co-operation and Development (OECD) outlook for the UK. The group has raised its outlook from 'around trend' in its composite leading indicators (CLIs) for August. The CLIs offer a good prediction of forthcoming economic movement and their improvement suggests that the country is on track to continue strengthening its rate of growth.

More immediate data from the Bank of England also shows improvement in the country's financial situation. The Bank raised its growth forecast this week (Wednesday, 7 August) from 1.2 per cent for the year to 1.4 per cent. It pushed up its predictions for 2014 from 1.7 per cent to 2.5 per cent.

Following the growth forecast revisions, the Bank's governor Mark Carney has stated that he is to pay extra attention to sorting out the country's banks. In comments that could be welcomed by business buyers looking at finance options, Mr Carney said: “Finance can play a socially useful and economically useful function. In order to do so, the focus has to be on the real economy, what it does for businesses making investment and what ultimately it means for jobs in the economy.

“It’s finance that becomes disconnected from society and only talks to itself that becomes socially useless.”

In the Bank's latest inflation report, Mr Carney also offered “forward guidance” on where interest rates are likely to head in the coming months. The Monetary Policy Committee (MPC) has announced that it will keep the official interest rate at 0.5 per cent until unemployment drops below seven per cent. This is not expected to happen before 2016, hopefully facilitating a few more years of low cost borrowing.

This plan is far from certain, however. PwC is among those to have questioned the MPC's approach: “A long period of low interest rates is not guaranteed, however. Unemployment may fall more quickly than the Bank expects if the recovery gathers momentum. Persistent above-target inflation could also cause the MPC to reassess its position.

“So though the objective of this "forward guidance" is to increase confidence that interest rates will remain low, there are still many uncertainties which could result in interest rates rising faster than today's statement suggests."

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