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GEORGE Osborne must have felt like Harry Houdini last week after the UK economy escaped falling into the dreaded triple-dip recession so many people had feared.
The Chancellor took to his new Twitter account to declare that growth of 0.3pc in the first quarter of the year was a sign that “the economy is healing”. The stronger than expected rise in GDP was undoubtedly good news and City sources I know say it lessens the likelihood of further monetary policy easing from the Bank of England.
The view from the square mile is that Osborne must now turn this modest growth into a sustainable recovery.
My economist chums reminded me that first-quarter growth was driven by the services sector, while manufacturing and construction fell. There is still some way to go until the Government achieves its ambition of rebalancing the economy, so that manufacturing plays a bigger part in driving growth.
Growth on the other side of the Atlantic meanwhile disappointed during the first quarter, which I’m told by City contacts is likely to delay the US Federal Reserve’s withdrawal of stimulus.
Closer to home, the eurozone remains on edge, with diminishing consumer confidence and signs that the region’s economy is likely to contract again in the second quarter. I’m told to expect a further cut in interest rates, possibly as soon as Thursday’s ECB meeting.
Events have been even more exciting in the world of commodities where gold has dominated most of the headlines.
Gold always divides people. Gold bugs point to current monetary policy and the devaluing effect it has on currencies while bears argue that it’s a non-yielding asset that costs to own so there are better homes for your cash.
Of course the bears are right and it costs to own physical gold but that doesn’t matter if the price carries on rising, as it has done for the last 12 years.
The recent plunge and partial recovery in the gold price has split views in the market even further. What is really interesting is the complete dislocation in the paper gold market (ETFs) and the physical market. Gold coins in the US are flying off dealers’ shelves and queues have formed in India and China to buy jewellery after the price dip. It’s a mug’s game trying to forecast the price in this sort of environment but the strength in the physical market will be easing nerves for gold advocates.
Elsewhere in commodities it is quite gloomy.
Prices have been heading south, with copper prices on the LME falling below $7,000 a tonne on one day last week. There could be further falls ahead. This is true for agriculturals too, as grain stocks are finally starting to rise in the major food producing nations. All these price falls are gloomy portents for the global economic recovery.
That’s all for now. Time to perform a disappearing act of my own for a week in the sun. I’m told Corfu is rather nice at this time of year – I might even bump into Osborne or Peter Mandelson who we all know enjoy holidaying there. Take our poll and have your say.
Until next time….