The Bank of England governor has said he believes the recovery of the UK economy is "in sight" in one of his most optimistic forecasts since the start of the global economic crisis. The inflation report saw Mervyn King increase the bank's expectations for gross domestic product growth and, as importantly, lower inflation forecasts, a factor which had been a worry after hikes in the price of fuel and food.
The most recent estimates for Northern Ireland suggest the economy is still contracting but the central bank's optimism will gladden the hearts of the business community as prosperity in the rest of the UK, particularly London and south east England, should lead to growth here.
"Of most significance today is that there is a welcome change in the economic outlook," he said. "Today's projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago. That is the first time I have been able to say that since before the financial crisis."
The bank's surprisingly upbeat Inflation Report forecast comes as a poll shows that optimism about the economic prospects of the country has surged. The proportion of the population who think the country will be better off over the next year jumped from 22% to 30% in a month.
The "light at the end of the tunnel" forecasts will provide a huge boost to George Osborne after more than three years of sustained gloom since the coalition came to power. Sir Mervyn, who steps down in June, said: "It was not a typical recession and it will not be a typical recovery, nevertheless a recovery is in sight."
The bank also said inflation would not rise as strongly as previously feared and predicted that interest rates will stay below 1% for another four years.
The improvement follows last month's surprise news that the economy grew by a better than expected 0.3% in the first quarter.
Some economists had been warning of a fall in GDP, which would have condemned Britain to an unprecedented triple-dip slump. A soaring FTSE-100, now within a few hundred points of its all-time high, and signs that property prices are on the move again have added to the growing sense that "the worst is over".
Sir Mervyn also urged caution and said "this is no time to be complacent – we must press on to ensure a recovery".
Some City economists remained unconvinced. Marcus Bullus, trading director at MB Capital, said: "Sir Mervyn's valedictory Inflation Report was always going to be bullish. With one eye on his legacy and one on the economy, the temptation to look for positives must have been overwhelming. He assured us once again that the, 'recovery is in sight'. It is, if you are peering through the Hubble space telescope."
Of the population believe the country will be better off
Corporation tax rate in the Republic of Ireland
How much the eurozone contracted January to March