There are comforting signs for the UK economy but normality could be some way off, a deputy governor of the Bank of England has said.

In a speech on 13 December, Charles Bean, deputy governor for monetary policy, said economic prospects in the UK depended on private domestic demand and rising net exports, as the economic contribution of government spending reduces.

“While the outlook remains highly uncertain, the improvement in both financial markets and in the real economy since mid-2009 is likely to have contributed to the modest recovery seen in businesses’ capital spending over the past year,” he added.

Bean warned that peripheral European countries needed to carry-out structural reforms in the face of financial challenges to restore their competitiveness without the option of devaluing their currency.

He said the risks to UK banks from exposures to troubled European countries were limited due to improved ‘resilience’ in financial institutions; however, the interconnected nature of European banks could cause some adverse issues and affect credit supply.

In data published on 13 December the Organisation for Economic Co-operation and Development (OECD) predicted economic activity in most developed economies would stabilise going into 2011.
 
The OECD said growth prospects varied across major economies but there were some tentative signs of ‘convergence in economic cycles’ in many countries.

The OECD predicts regained growth momentum for the United States with stable growth predicted for countries in the Eurozone.

The organisation’s economic survey of the Euro area forecast annual growth of 1.5 per cent to two per cent over the next two years.

It said the severe recession and the sovereign debt crises that have followed were the first major tests of the ‘robustness’ of the Euro area in a downturn.

The OECD is recommending governments improve discipline when it comes to public spending, step-up financial regulation and implement reforms to boost growth and competitiveness to overcome the large imbalances that have built up in economies.

The composite leading indicators – which use data to predict turning points in business cycles – predicts a slowdown in the fast-paced activity seen in Brazil, and a downturn in economic activity levels in India. The OECD indicators, meanwhile, point to expansion in Russia going into 2011.

© Fair Investment Company Ltd