Things looking up at last with series of boosts to economy

Published on Monday 4 January 2010 21:40

RECOVERY hopes for the New Year have been bolstered by a raft of upbeat figures on manufacturing, mortgage lending and the Bank of England's £200 billion efforts to aid the economy.

Manufacturers enjoyed their best month for two years during December, according to the Chartered Institute of Purchasing & Supply – fuelling hopes that the UK emerged from recession in the final three months of 2009.

Meanwhile, the number of mortgages approved for house purchase in November reached 60,518 – the highest level since March 2008 – as the property market continues to recover, according to the Bank of England.

More figures showed the Bank's preferred measure of bank, building society deposits and cash in the economy was up 0.9 per cent – 14.3 billion – in November after falls in the two previous months.

The stock market caught the positive mood, with London's FTSE 100 Index pushing to new 16-month highs on the first day of trading in 2010.

Colin Ellis, at Daiwa Capital Markets Europe, said the positive data represented a "late Christmas present" for the Bank's Monetary Policy Committee (MPC) although he warned against reading too much into often-volatile monthly statistics.

Capital Economics' chief European economist Jonathan Loynes added: "2010 is likely to be a year of gradual recovery, rather than booming growth."

In a separate study, Graeme Leach, chief economist at the Institute of Directors (IoD), said the next two years looked pretty grim. "We are very doubtful of a sharp bounce back in 2010," he said.

The MPC is meeting this week and is expected to keep interest rates at record lows of 0.5 per cent and the scale of its quantitative easing programme unchanged at 200 billion. The UK is the only G20 economy still in recession. Latest figures show the economy shrank by 0.2 per cent between July and September last year.

The positive data also came amid signs of a split among economists over how quickly to tackle the UK's dire public finances.

According to a survey, 33 out of 71 economists agreed with Chancellor Alistair Darling that efforts to slash the deficit should wait until 2011 due to the fragile economy. But 31 experts took shadow Chancellor George Osborne's view that the repair job should start sooner to soothe market fears and avert a potential sovereign debt crisis.

The split echoes the fierce debate between the main political parties as the general election draws closer and underlines the uncertainty ahead as the economy edges its way out of recession.

The impact of the slump and extra spending to help the economy is set to send net borrowing to a record 178 billion this year according to official forecasts.

The survey also found an almost unanimous view among experts that house prices are too high. According to the Nationwide building society, average prices rose 5.9 per cent in 2009, in a bounce back from double-digit declines of the previous year.