Newspaper article The Journal (Newcastle, England)

UK Economy Once Again Proves to Be Resilient

Newspaper article The Journal (Newcastle, England)

UK Economy Once Again Proves to Be Resilient

Article excerpt

Byline: By Paddy Lewis

Having ended 2004 on a positive note, global equity markets made a more tentative start to the New Year. Crude oil prices rose from $40 per barrel to around $55, despite a pledge from OPEC to raise production.

Bond markets were generally weak as interest rates continued to rise in the US and signs of inflationary pressures began to emerge on both sides of the Atlantic.Over the first quarter, the FT World Index fell by 1.4% in dollar terms and rose by 0.2% for sterling investors.

Once again, the UK economy proved to be one of the most resilient in the developed world. Q4 2004 GDP rose by 0.7% quarter on quarter, the fastest rate of growth for four years.

This also represented the 50th consecutive quarter of uninterrupted growth, an impressive record given the economic disruptions of recent years. For 2004 as a whole, output grew by 3.1%, in the middle of the Chancellor's forecast range.

The rate of inflation remained below the Bank of England's target level of 2%, with a figure of 1.6% recorded for last year.

Rather less optimistically, retail sales over the Christmas period proved to be the worst for a decade, with consumers finally cutting back on profligate spending. House prices fell by 0.8% in March according to the Nationwide Building Society ( the largest drop in 10 years, reducing the annual rate of inflation to 7.9%. Transaction activity has also slowed markedly, suggesting that price inflation may continue to slow.

The March Budget proved to be uneventful, with major policy changes having been flagged well in advance. Chancellor Gordon Brown is still anticipating GDP growth of between 3% and 3.5% for this year, but inflation is expected to pick up in 2006.

This was a feature of the last Bank of England quarterly inflation report, with the CPI forecast to hit the Bank's 2% target over the course of next year. Recent minutes from the Monetary Policy Committee showed two members voting for an immediate quarter point rise in interest rates.

This may seem counterintuitive given the slowdown in consumer activity, but the Bank is concerned about rising wage levels and the lack of spare capacity in the economy. …

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