UK economy: mixed messages muddle markets

Sterling climbed close to $1.30 – its highest since before Britain’s parliamentary elections – as investors brought forward their expectations for when the BOE will begin to tighten monetary policy. Consumer borrowing was up sharply in May, but as David Pollard reports, consumer confidence is down – and there is confusion in the markets over the central bank’s guidance.

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The tide may be turning …
But in a week of policy surprises from central bankers, not all have been bad.
At least if you’re a Brit heading abroad.
The pound is up against foreign currencies – on new expectations of a UK rate hike.
More power to spend on sea, sun and cerveza.
When you might feel like a drink anyway – as the Bank of England moves to restrict lending.

(SOUNDBITE) (ENGLISH) BANK OF ENGLAND GOVERNOR, MARK CARNEY, SAYING:

“Consumer credit growth has far outpaced that of household income over the past year, with notable increases across credit cards, personal loans and auto finance …”
The latest BoE data shows consumer borrowing up ten per cent over the year.
Mortgage approvals also beating forecasts.
In contrast to consumer confidence …
Amid slowing retail sales, a near three per cent inflation rate and stagnant wages, its latest measure shows a 10-month low.

(SOUNDBITE) (English) BGC PARTNERS MARKET STRATEGIST, MIKE INGRAM, SAYING:

“I wouldn’t necessarily take the consumer credit figures as a positive sign. I mean we are in a situation where real incomes in the UK are undoubtedly being squeezed. And much of the the consumption therefore is being funded essentially by borrowing.”
But the BoE has this week already announced banks will have to shore up capital positions.
In what economists see as a de facto monetary tightening.
Mark Carney’s apparently sudden about-face this month leaving confusion – even anger.

(SOUNDBITE) (English) BGC PARTNERS MARKET STRATEGIST, MIKE INGRAM, SAYING:

“Forward guidance from the Bank of…

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