Exports To Lead Growth Next Month

Medium sized firms are reporting an increase in confidence for the first time since April 2007. They are expecting a growth in orders despite a marked fall in the volume of total new orders in July. Export orders also continue to decline but again firms are increasingly optimistic about exports. As with orders, so output is also slowing, but the optimism about exports includes leading a return to growth in the next quarter.

The quarterly CBI report on SMEs says that business remains difficult but although the indications are that business is still falling it will improve over the next three months. The position of the pound has not made much difference to small and medium sized businesses and their exports but they are responding to improved credit conditions. Firms are still running down stocks and working below capacity.

Bank Maintains Interest Rates At 0.5%

The Bank of England's Monetary Policy Committee decided at their meeting on 7 May 2009 that the bank rate will stay at 0.5% on commercial bank reserves. The MPC also decided to increase the size of its asset purchase programme by £50 billion to £125 billion. The world economy remains in deep recession, global output has contracted and international trade has fallen. The increase in private saving, the restructuring of balance sheets by banks and weaker global demand will continue to hold back economic activity. Another factor acting in the other direction is the stimulus given by governments around the world to improve the availability of credit by easing in monetary and fiscal policies. It was decided that as the stimulus is expected to eventually lead to a recovery in economic growth and inflation to return to the 2% target, the interest rate should remain at 0.5% and also to continue with the programme of asset purchases financed by the issuance of central bank reserves and increase its size to £125 billion.