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'economic Recovery Not Certain' - Bofe

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'Economic recovery not certain' - BofE

The economy is not out of the woods and rates will stay low for some time – that was the message from Bank of England economist Kate Barker today, as new data showed a recovery in manufacturing.

Official figures showed growth returned to the manufacturing sector for the first time in more than a year. Revised numbers from the Office for National Statistics (ONS) indicated that the downturn for manufacturers came to an end in March, with a 0.2% increase in month-on-month output.

April's figures indicated that the industry had maintained the rate of growth at 0.2%. It is the first time the sector has seen growth since February 2008.

The figures follow a clutch of surveys in recent weeks suggesting that the economy may be over the worst. Some analysts now say the economy may have even start growing in the second quarter.

But monetary policy committee member Barker warned, 'The really important question is (whether) there's a pick up in the economy and if people can sustain that so it continues on to autumn.'

'Our present view is that we think rates could stay low for quite some time,' she was quoted as saying on the Leicester Mercury newspaper's website.

The Bank has kept interest rates at a record low of 0.5% since March and embarked on a £125bn quantitative easing programme to pull the economy out of recession. Economic output fell by 1.9% in the first three months of the year.

'Some areas of retailing are still doing reasonably well and manufacturing orders are starting to come back, but whether that's a stocking issue or a turn-up in final demand isn't so clear,' she was quoted as saying.

'I think there's a lot of concern about what's going to happen beyond this pick-up.'

Howard Archer, chief economist at analysts IHS Global Insight, agrees with Barker on that much of the improvment is down to de-stocking: 'The manufacturing sector is now clearly being helped significantly by the substantial de-stocking that has taken place and it may well also be increasingly benefiting from the boost to competitiveness stemming from the weak pound.

'Kate Barker's comments complement those made by another MPC member, Paul Tucker. Together, they reinforce our belief that interest rates will stay at 0.50% deep into 2010 and that Quantitative Easing will be further extended.'

Bank of England deputy governor Paul Tucker yesterday said that banks must urgently open the taps of credit to prevent a self-defeating spike in debt defaults. He said BofE figures showed that lenders are fattening margins to record levels while continuing to restrict the supply of credit.

Tucker said while it would be 'quite tempting' for banks to sit on their hands and rebuild their balance sheets. But those tactics will come back to haunt them, because by starving the country of credit they will push more firms and individuals over the brink.

Meh. Lots of talk, no action. Typical bank mentality. Watch out fot the 'taps of credit' though.

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If they want to get the banks lending again they should guarantee the debt. If that isn't enough to entice the banks, fund the lending yourself with some newly-printed Treasuries. We know the appetite for Treasuries will not go away.

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Hmm... when I read these articles, from the people who never saw it coming, I struggle to see it more than a justification article to continue QE and ZIRP.

Infact, Kate Barker herself produced a detailed report on the housing market, warning if more houses weren't built prices would sky-rocket. Shame it's proved to be wrong...

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If they want to get the banks lending again they should guarantee the debt. If that isn't enough to entice the banks, fund the lending yourself with some newly-printed Treasuries. We know the appetite for Treasuries will not go away.

the point is, banks ARE Lending.

the guarantee argument falls down when you consider WHO are not getting loans....its those that want to borrow unsustainable amounts, have a bad credit risk and no hopers.

Are these the sort of loans you want YOUR TAX to guarantee?

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Bank of England deputy governor Paul Tucker yesterday said that banks must urgently open the taps of credit to prevent a self-defeating spike in debt defaults. He said BofE figures showed that lenders are fattening margins to record levels while continuing to restrict the supply of credit.

Have said it before, and will say it again...

Do the banks like being on the hook to the state to some degree?

[insert answer here]

Given that we've seen the lenders hassled repeatedly to increase lending for the best part of two years and yet they've failed to do so, I can only think that state and lenders have worked out different routes out of this mess. The message from the state seems to be "don't worry, get lending, and we'll sort it all out later", whereas the bank's message is more along the lines of "we're worried, we'll sort this now, then we'll get lending".

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Bank of England deputy governor Paul Tucker yesterday said that banks must urgently open the taps of credit

add to;

"getting the banks lending"

"get credit flowing"

as the empty rhetoric none of the politicians or economists appear to be tired of saying. Add also,

"worst financial crisis since the great depression"

"biggest downturn since the second world war"

"most severe recession for 60 years"

as other things they say which have a very hollow ring now that we know for certain, they are creating a 2001-esque reponse to a situation where they are now using ZIRP designed to combat a risk of deflation which has long since passed.

...bernanke [and king] are forever blowing bubbles.

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