Bank of England governor says 'worst may soon be over' for world economy

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The Independent Online

There are "tentative" signs a global economic recovery is under way, the Governor of the Bank of England told an audience of international bankers last night.

Sir Edward George said the worst "may soon be over" adding that the recovery would provide "some support" for share prices across the globe.

In a short speech to the International Bankers' Club, in London, Sir Edward said he was making no comment on interest rates but added: "With inflationary pressures subdued monetary policy generally can, for the time being at least, afford to remain reasonably supportive."

His choice of words is likely to be interpreted by some as another sign the Bank will not keep rates at their current 38-year low of 4 per cent much longer. His remarks came as the UK's largest employers' group, the CBI, called on the Bank to cut rates this week despite publishing figures showing the high street enjoyed another bumper month in January. Its survey showed the balance of retailers reporting a rise in sales eased slightly to 39 from 48 per cent in December.

However, it highlighted the fact that only a quarter expected sales to grow in February. Ian McCafferty, the CBI's chief economic adviser, said: "Retail sales growth is still healthy but has slowed since the Christmas high and retailers are expecting growth to slow further. Until the global economy begins to pick up the UK needs consumer spending to remain strong. With inflation low there are good arguments for a further rate cut."

The CBI's call followed an appeal by the Engineering Employers' Federation for a quarter-point cut when the Monetary Policy Committee meets tomorrow and Thursday.

However, independent economists are unanimous in predicting rates will stay on hold, and most said the CBI report showed consumer spending was still strong. They pointed out that growth in January sales rose at twice the pace retailers had forecast in December and that firms were more optimistic than they were in December. Ross Walker, UK economist at Royal Bank of Scotland, said: "All in all, reports of the death of the British consumer are very much exaggerated."

Meanwhile, growth in construction accelerated in January, according to a separate survey. The increase was led by housebuilding, which was boosted by favourable conditions in the housing market.