Following the upbeat UK gross domestic product figures released last week which showed that Britain managed to avoid a triple-dip recession, another report released today showed an ease in manufacturing sector contraction in the first month of the second quarter. UK manufacturing showed an ease in contraction to 49.8 last month from a revised of 48.6 a month earlier, beating forecasts of 48.5, while construction and services figures, due on May 2 and May 3, will give a wider scope about the health of the UK’s main sectors. The news give further positive signs that the economy is on the right track towards recovery after it managed to escape recession in the first three months of this year.
However, for the UK to continue in a strong growth path it has to rethink about its austerity measures aimed to cut budget deficit, where the IMF has urged UK Chancellor George Osborne to scale back some of the austerity measures to compensate the weak demand, yet Osborne remains committed to his spending cuts to cut budget shortfall in five years.
Next week, the BoE is predicted to leave both interest rate and APF quantity unchanged amid a continued split among policymakers regarding stimulus as last month Mervyn King, Paul Fisher and David Miles resumed their call for adding an extra 25 billion pounds to QE while the majority preferred a hold. The BOE, which renewed confidence in its FLS scheme by extending it until 2015, will probably wait until the arrival of the new governor Marc Carney in July as he aims to adopt new monetary policy tools. It seems that the BOE has decided to extend its FLS program as adding more to stimulus will probably add more inflationary pressure and won’t have significant impact on growth while a further interest rate cut could harm savers and bank profits.
EasyForexNews Research Team