Why Is Britain Optimistic About Economy?

Optimism still reigns in Britain. The country’s economy, and related exchange traded fund (ETF), could be past the worst of the recession, but economic numbers are not exactly lining up with people’s hopes at the moment.

Peter Mandelson, deputy to Gordon Brown, says the worst of the recession is over, according to the Economist. Businesses and purchasing managers have reported improvements in manufacturing and increases in output. Residential builders are relieved with a possible stabilization of the housing market.

But the favorable signs are now being followed by poor economic data with a GDP drop of 2.4%, up from earlier projected 1.9%, in the last three months of 2009 and the first quarter of 2009. Output was down 4.9%, compared to the previous estimated 4.1%, since the start of 2008.

Auspicious signs of the economy are turning up. Some have reasoned that the severe downturn was because firms rapidly reduced their inventories. Eventually, companies will have to satisfy demand from new production, boosting the economy.

Monetary and fiscal policies are working to revive the economy. The Bank of England is keeping rates at a low of 0.5% and supplying $206 billion, or 9% of GDP. Fiscal policy is rather loose, so much so that some are worrying about the future plans for fixing the budget deficit.

• iShares MSCI United Kingdom Index (EWU): up 5.9% year-to-date
  

For more information on the United Kingdom, visit our U.K. category.

Max Chen contributed to this article.

Comments

[jimboy:]

The UK has been badly hit by the bursting of its housing and financial bubbles which did a lot to mask a pretty poor ten years of economic management since Labour came to power in 1997. The government´s terrible fiscal problems (the govt may need to borrow 14% of GDP this year) are merely the most visible reason why I think a meaningful recovery is virtually sure not to happen. The reason why there is some confident talk of one is that the UK has very tight housing fundamentals (it´s a small island that doesn´t build enough homes) and so the near 0% interest rates, bank bailouts and QE program is to some extent reflating the burst bubble, something that looks impossible in countries like the US and Spain where there is a massive overhang of unsold properties. Short term then maybe an illusion of recovery but long term the UK is in deep trouble.

Jul 13 01:44 PM

[Dave Wrixon:]

Yeah, basically outside Obama's Emerald City, everyone is in deep shit :)

Jul 13 04:08 PM

[AndrewBaker:]

The UK government are masters of the art of bullsh*t baffles brains. They are pretty good at claiming expenses for themselves from money they take from others via taxes and other nefarious fund raising methods, and pretty good at making others throw their money at lost causes, but useless at managing an economy.

Take any suggestion from them of the recession being mostly over with a very large pinch (even shovelful) of salt. They have an election next year and an unelected and unpopular leader: they will say anything to keep their backsides on the seats of their parliament building.

The UK's debt will exceed GDP very soon and the pound will crumble away more than the dollar or at least to the same extent. Do not think of backing this economy.

Jul 14 09:53 AM