Economist Forecast Downward Growth

Paresh Davdra is the Dealing Director of RationalFX, Currency Specialists. Tuesday 25th November 2014 14:27 EST

Last week Bank of England Governor Mark Carney and his chief economist, Andy Haldane, indicated they are focused on downside risks to inflation as the central bank emphasizes the reasons for keeping loose monetary policy. The comments came days after the BOE lowered its U.K. growth and inflation forecasts because of global expansion and stagnation in Europe.

The central bank’s nine-member Monetary Policy Committee kept its key interest rate at a record-low 0.5 percent this month, and Carney said in the interview that low borrowing costs were justified because of slack in the labour market, among other issues. One of these other issues was revealed in a report released the middle of last week: New figures from the Office for National Statistics showed UK real wages have fallen for the sixth year. This indicates the full scale of the squeeze on living standards, as earnings have stagnated in the face of economic ‘recovery’.

Real pay, adjusted for inflation, fell by 1.6% this year, with gross weekly earnings barely growing at all.There was increasing signs this week that the US economy is getting healthier and healthier for instance: Purchases increased 0.3 percent after a 0.3 percent drop in September, the Commerce Department reported in Washington on Friday. The median forecast was projected a 0.2 percent advance.

Eleven of 13 major categories showed gains, indicating broad-based growth.The Commerce Department’s retail sales figures used to calculate gross domestic product, climbed 0.5 percent in October after being little changed the prior month. The September reading was revised up from a previously reported 0.2 percent decrease. The 1.9 percent increase in demand at non-store retailers, which include on line merchants, was the biggest since March.

Restaurants, sporting goods, clothing and pharmacies were among the other categories showing an upturn in demand. U.S. consumer sentiment also rose in November to a more than seven-year high as falling unemployment and lower gasoline prices boosted views on both current conditions and expectations, a survey released on Friday showed. The University of Michigan's preliminary reading on the overall index on consumer sentiment for this month came in at 89.4, the highest reading since July 2007, well above the expectations of economic forecasters.

As well as this, wholesale prices unexpectedly increased in October as higher costs for services and food outweighed a slump in energy. The 0.2 percent advance in the producer-price index followed a 0.1 percent drop the prior month, the October increase reflected the biggest gain in services costs since July 2013. There was a catalogue of improving economic news coming out of the Euro zone last week: The Euro significantly strengthened on Friday after news emerged the euro-zone economy grew 0.2 per cent in the third quarter, according to official figures published by Eurostat, beating expectations of 0.1 per cent growth.

The French economy grew faster than economists forecast in the third quarter as domestic demand helped it bounce back from a contraction in the previous three months.  Gross domestic product rose 0.3 percent in the three months through September, the most in more than a year. The German economy has narrowly avoided recession, growing 0.1% in the third quarter, the country's statistics office said. With the economy contracting 0.1% in the April-to-May quarter, another negative figure would have meant Germany entering recession.

Germany's 0.1% contraction in the second quarter was a revision from a previous estimate of a 0.2% shrinkage in the April-to-May period.The statistics office said German consumers had increased spending strongly during the third quarter period, and that exports had also risen.

The figures will be seen as good news for the wider euro-zone, whose sluggish growth has forced policy makers to cut interest rates and introduce other stimulus measures.German government forecast growth of 1% next year following a 1.2% expansion in 2014, citing  "geopolitical risks" such as the Ukraine crisis as a potential reason for the slight drop, but also criticised policies such as plans to introduce a minimum wage next year. Further good news for the euro-zone, Greece exited recession and entered growth for the first time since austerity measures were put in place.

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