Margareta Pagano: George Osborne has to nurture Mr Happy's confidence
The Bank of England Governor has tentatively called the recovery, and UK Plc appears to be in agreement. Now, the Chancellor has to reinforce it
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Sunday 17 March 2013
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 last week, British companies 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 per cent 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 for comfort.
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, the Governor 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 thankfully 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 in office, wants to ensure history record it was he who called the recovery before George Osborne – or indeed the incoming 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 since the post-crash blues.
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, out tomorrow, 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. On Thursday, the FTSE hit 6,529, the highest it's been since 2007, and some predict it will top 7,000 by the end of the year. 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.
Shares in retailers such as Ocado, Morrisons and Home Retail were particularly strong on the news that they are now investing for the future. Tesco's decision to go to the jungle for growth with its acquisition of the Giraffe chain of restaurants suggests the supermarket anticipates healthier household budgets, too.
These examples may not be huge but they show 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 go and blow this confidence in the Budget – it's the most expensive and fragile commodity of all.
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