By ADRIAN LOWCOCK 19/06/2009
A round up of the latest major economic news and developments.
Bank of England’s Meryvn King warns it is too early to say economy is improving
Whilst there have been recent signs that the pace of decline in the economy is slowing down and even levelling off, it is too soon to draw strong conclusions about the future. Confidence has fallen rapidly as the economy has fallen into recession. Mervyn King was quoted saying “You can’t regain it quickly, so it’s bound to take a lot longer to recover than it was to fall into recession, which was a very sharp fall in activity over the last six months”. King’s comments were in line with the cautious tone of his speech at the Mansion House Dinner earlier on in the week.
Weak economic data tarnishes recovery
On Thursday, the Office of National Statistics published the retail sales figures for May 2009. Sales fell 0.6% following a rise of 0.9% in April. This was significantly below forecasted growth of 0.4%. Sales are down 1.6% compared to a year ago. The Confederation of British Industry said factory orders fell slightly more than expected in June. The export orders balance falling for 53% of manufacturers surveyed this month, from a 46% drop in May, the lowest since October 1998.
Public sector borrowing rises
UK’s public finances continued to deteriorate in May, posting the worst figures on record with borrowings of £20 billion. While the markets are prepared for borrowing to reach £175 billion in 2009, this figure is more than expected. If it continues at this rate we could see the full fiscal deficit rise to £190 billion by the end of the year. Further rises in borrowing will put pressure on the Government to raise taxes and cut spending restricting any economic recovery.
Mortgage lending down 58%
This week, the Council of Mortgage lenders announced that in May, gross mortgage lending fell 58% year-on-year to £10.3 billion. This represents a 2% fall on April’s figures of £10.5 billion. Lending volumes appear to have stabilised at very low levels. With a weak labour market and limited access to funding activity will remain flat for some time.
Unemployment up less than expected
The level of unemployment rose to its highest in more than a decade to 4.8%. The number of benefit claims rose by 39,300 in May, significantly below the 60,000 expected. However, the number of people in employment fell by 271,000 during the last month, the biggest increase since records began in 1971.
Inflation falls less than predicted
Consumer Price Inflation (CPI) fell by 0.1% to 2.2% and remains above the Government’s targets of 2%. Some of the reasons for the less than expected fall in CPI can be attributed to tax increases on tobacco