Belfast Telegraph

Friday 29 August 2014

Sir Mervyn morphs into Mr Happy but has he got it right?

Hand of history: Sir Mervyn King is about to ride into the sunset
Hand of history: Sir Mervyn King is about to ride into the sunset

Don't faint, but it really does look as though Sir Mervyn King, the Governor of the Bank of England, is right about seeing light at the end of the tunnel – and for once he's not predicting a train crash.

As Sir Mervyn said in his ITV interview recently, UK firms are now much more optimistic about the future and the pound is at the right sort of level to help boost exports. Most pertinent, though, were his comments that if you strip out the construction industry and North Sea oil, the UK's economy is nowhere near "triple-dip territory" but actually grew by 1.5% last year.

That was a typical Mervyn-style slap to the more gloomy Cassandras who have been warning of a triple-dip – even though their forecasts are based on just one month's industrial production figures – with far too much relish.

We've got so used to Sir Mervyn being Mr Grumpy that it's a bit of a shock seeing him turn into Mr Happy overnight.

Admittedly he was wearing his new guise with care, suggesting only that "there is momentum behind the recovery that's coming" and that it would be "in sight in 2013".

But if the Governor is right about recovery, then why did he vote for quantitative easing at the last Monetary Policy Committee?

He was one of three MPC members who voted for another increase in money printing, which was voted down. And only last November he warned the UK was stuck in low growth for years.

Either the Governor got it wrong before or he has been playing games with the markets to get sterling down and now wants it back up. Or, if you were more cynical, you might suggest Sir Mervyn, who has only a few months left, wants to ensure history records it was he who called the recovery before George Osborne – or indeed new governor, Mark Carney – claim credit.

Whatever his motive, Sir Mervyn has become Mr Happy with impeccable timing. Two new surveys out tomorrow from Markit also suggest that business confidence is enjoying the most remarkable bounce. One is the PMI Outlook Survey, which reports that the mood around the globe, led by the US and China, is now finally lifting.

Chris Williamson, Markit's economist, says UK export companies are the most optimistic of all, while even businesses in Spain and Italy are more confident than they have been for years. That's good news for us, too, as half our exports are to the continent.

Even more positive are the findings from a second Markit survey of 1,500 UK households which claims that consumers are more optimistic about their jobs and busier at work than ever.

You only have to look at the FTSE 100 index to see how perceptions are changing with five year highs being hit last week, albeit before this week's Cyprus-induced slide. What is heartening about this strength is that it is driven by improvements in the retail and financial sectors; two of the worst performing since the crisis.

UK plc is gaining the confidence to nibble away at its £750bn cash mountain and that Keynes' famous "animal spirits" are coming out of the bottle. Let's hope the chancellor doesn't blow this confidence – it's the most expensive and fragile commodity of all.

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