Bank of England sees 'modest, sustained' recovery

LONDON (AP) ? The Bank of England predicted a modest and sustained economic recovery for Britain on Wednesday, but tempered hope that the worst might be over with predictions that inflation will remain above its targets for the next two years.

In presenting the central bank's quarterly inflation report, Governor Mervyn King offered a twinkling of optimism that good things might be in store for a country struggling to get back on track after the 2008 financial crisis. It has been in recession twice since then.

"This hasn't been a typical recession and it won't be a typical recovery," King said at a press conference to explain the report's findings. "Nevertheless, a recovery is in sight."

The cautiously more cheerful outlook gave King, who will step down as governor in July after 10 years, a chance to deliver his final inflation report with a bit of good news after a tenure marred by global economic gloom.

King has presented 82 inflation reports since joining the central bank 20 years ago ? first as chief economist, then as deputy governor and finally as governor. He will be replaced by Mark Carney, now head of the Bank of Canada.

The report estimated that the U.K. economy should pick up, growing by 0.5 percent in the second quarter of this year, and that the main risks to Britain's economic recovery continue to come from abroad. Many of the country's European trading partners are suffering an economic downturn ? France is in recession and Germany is barely growing.

However, it says inflation, which is stuck above the 2 percent target, is set to edge higher in coming months, partly due to a weakening in the value of the pound, which makes imports more expensive.

The Bank of England's inflation report was the first since official figures last month showed the U.K. had managed to avoid falling into a third recession since 2008 by growing 0.3 percent during the first quarter. The figure was better than expected and offered some breathing space to the government, which is facing criticism for its tough budget austerity policies.

Though rising energy, food and tuition bills are pressuring consumers, King said inflation will be "a little weaker" than expected in the last inflation report issued in February.

The bank now predicts the inflation rate will peak at 3.1 percent after the summer and fall to the 2 percent target by the first quarter of 2015.

Since the last inflation report, oil and commodity prices have fallen, helping to temper inflation. Data on the construction and manufacturing sectors have been encouraging and the services sector has powered ahead.

But experts remain wary.

"There has been a fair bit of excitement about the renewed signs of life in the economy," said Vicky Redwood of Capital Economics. "We would be wary of getting too absorbed in the ebb and flow of the data."

Simon Hayes, an analyst at Barclays bank, noted that while King's remarks were "imbued with a cautious optimism" they also suggested the bank would be unlikely to pump more money into the British economy under a stimulus program commonly called quantitative easing.

Since 2009, the bank has pumped 375 billion pounds ($579 billion) into the British economy. Under the program the bank buys government bonds from financial institutions in the hope they will use the proceeds to lend to companies and households, boosting the economy.

"The improved tone on activity came with the natural corollary of a reduced likelihood of further monetary support," Hayes wrote in a statement.

Journalists tried to press King to wax nostalgic on his many years at the Bank of England, but he dodged sentimentality. When the assembled press applauded, King looked somewhat stunned.

"There are some things about this job that I certainly won't miss but one thing I will miss are these regular Inflation Report Press Conferences," he said. "They are probably the one event I've looked forward to and prepared hard for and believed have been the most valuable."

Source: http://news.yahoo.com/bank-england-sees-modest-sustained-recovery-141822333.html

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