Economy getting Miles better, says Bank of England man

Incoming MPC member David Miles says he's 'guardedly optimistic' that the UK economy has turned a corner...

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Last Updated: 31 Aug 2010

David Miles, the Morgan Stanley economist who’s joining the Bank of England’s Monetary Policy Committee in June, said yesterday that he thinks we might be through the worst of the recession. In an interview with the Western Mail, Professor Miles suggested that the recent Bank and Government interventions (like rate cuts and quantitative easing) would have a ‘substantial impact on demand in the economy’ – and as a result, 'the worst of the recession may well be behind us’. How’s that for a little ray of Friday sunshine (as it tips it down outside our window)?

Miles pointed out that there tends to be a bit of a time lag before the effects of fiscal and monetary policy kick in – for instance, the accelerated public spending and the VAT cut have only started to make an impact in the last few months. Equally, he said, it might be a while before we feel the effects of the Bank’s big rate cuts and quantitative easing programme – although apparently the early signs are promising. Although he admitted that it’s still early days, he reckons he’s ‘less pessimistic than many of where the economy may be going.’ Perhaps he’s hoping it will all be sorted out by the time he gets to Threadneedle Street.

Miles’ comments will give investors more reason for cheer, after a relatively hopeful week. Over in the US, strong results from Goldman Sachs and JP Morgan have boosted hopes that Wall Street can bounce back quickly (albeit provoking the wrath of Main Street for racking up huge profits so soon after a taxpayer bailout), while European stock markets have also enjoyed a bounce after a series of fairly positive trading forecasts. Even phone-maker Nokia, which saw profits drop a whopping 90% in the first quarter, was cautiously optimistic that the market is starting to settle down a bit.

Of course, not everyone’s joining Miles on the happy train. Those cheery souls at the IMF said yesterday that the global economy would be ‘unusually long and severe’, particularly if governments fail to throw more money at the problem. And in an interview with the FT today, Shadow Chancellor George Osborne suggested the Government’s spending plans would need to be cut drastically, given the ‘atrocious’ state of the public finances (which will no doubt lead to Labour accusations that the Tories plan to eviscerate public services).

The cynic might point out that Miles used to be an adviser to Gordon Brown (or at least, he wrote a report on home loans for him back in 2003) – so it might appear convenient that he’s talking up the economy just before next week’s Budget, at a time when the PM is under some serious political pressure. But we prefer to look on the bright side, and hope that he’s right.



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