It may seem hard to believe. Many will refuse to believe it’s possible. Others won’t want to believe it, especially those hoping for a Labour victory in the upcoming general election. But the facts are in. Things really are getting better.
This morning, we learned that the economy grew by 0.4 percent in March. Markets had forecast growth of just 0.1 percent, so that’s a really positive surprise.
Remember, this isn’t an annual figure, but a monthly jump.
In the first three months of 2024, UK GDP grew by 0.6 percent, the fastest in two years. Many thought we’d still be in a recession, but that’s no longer the case.
The recession is now officially over.
We’re growing across almost every front, especially the all-important services sector, which jumped 0.7 percent in March.
The only area lagging is construction. Which is hardly surprising, given today’s high interest rates, while working from home hits offices.
That’s a problem everywhere, not just in the UK.
But we may be the first to break out of that slump, given the surprisingly optimistic messages coming out of the Bank of England (BoE) yesterday.
The BoE may held interest rates at 5.25 percent for the sixth meeting in a row but governor Andrew Bailey was full of unexpected cheer.
He said its monetary policy committee (MPC) is ready to cut bank rate and not only that but “possibly more so than currently priced into market rates”.
Central bankers choose their words carefully, as they have the power to move markets, so this was a bit of a bombshell.
Certainly not what we expected from the cautious Bailey.
Although he said the first rate cut in June was “neither ruled out nor a fait accompli”, markets are getting excited.
By next year, interest rates could be down to three percent, massively easing the pressure on mortgage borrowers.
The cost-of-living crisis is finally drawing to a close, as Bailey declared his “optimism” that inflation will carry on falling in the current months.
In March, consumer price inflation (CPI) fell to 3.2 percent. Analysts expect it to hit 1.9 percent in April.
That’s below the BoE’s target of two percent, which is the green light to start cutting rates at its next meeting on June 20.
The April CPI figure will be published on May 21, so we’ll know soon enough if it’s true.
Two, three or four rate cuts this year would be fantastic news for mortgage borrowers, consumers, businesses, and the overall economy.
Something else is happening. Just a few weeks ago, investors were writing off the UK stock market, after years of underperformance.
Not anymore. The FTSE 100 has suddenly rocketed to an all-time high. It’s jumped again this morning, to trade at 8,424 at time of writing.
It’s up almost 10 percent so far this year. It’s jumped a staggering 5.75 percent over the last month alone. By contrast, the US benchmark S&P 500 Index climbed just 1.04 percent.
UK investors have been abandoning their own stock market in recent years. Now they may be having second thoughts.
Stock markets typically boom before a recovery, rather than afterwards. That’s because investors are forward looking, calculating how things will stand in six to nine months, rather than today.
They’re clearly optimistic.
They know the UK may be the first country to cut interest rates – ahead of the US Federal Reserve and European Central Bank – as inflation falls faster over here.
Apologies for all the optimism. I know people aren’t used to it.
They are still plenty of risks, given war in Ukraine and the Middle East, and the US-China stand-off. And if the oil price takes off, the cost-of-living crisis could return with a vengeance.
That things are pointing the right way today.
The big question is whether that is enough to reverse the Tory party’s fortunes, and save Rishi Sunak’s political skin.
It may not. Living standards haven’t improved in the last two years. But if the good news filters through before voters go to the polls, he might just stand a chance.
