Economy has turned a corner: BoE economist

Britain's economy has turned a corner thanks to unprecedented stimulus measures, weaker sterling and the end of the destocking cycle, but the recovery will be slow, Bank of England chief economist Spencer Dale said. In a speech to business leaders on Thursday, Dale also warned that the recovery faced challenges from much-needed adjustments to banks' balance sheets and global trade flows.
"The economy appears to have turned. And the most recent output data and business surveys suggest that we are likely to see positive growth in the second half of 2009," he said, according to a text of his speech. "Economic activity is being supported further by the easing in fiscal policy, the substantial depreciation in sterling, and by the fact that the inventory adjustment appears to be beginning to run its course," he said.
The pound has lost around a quarter of its value since June 2007, a recovery since the turn of the year has been fitful, with the currency hitting a five-month low against the euro earlier on Thursday. "Even if output does expand in the second half of this year, for many families and businesses it may still feel like we are in the economic doldrums ... the recovery may be slow and protracted," Dale said.
He also warned that much-needed structural changes to the global economy, banks' balance sheets and Britain's trade patterns could yet throw the recovery off track. "The structural adjustments that need to occur - to the structure of the banking system; to the balance of global trade flows, and to the level of public and possibly household debt - have the potential to delay and derail the recovery. "But monetary policy can not - and should not - seek to prevent those adjustments. They are necessary for the long-run stability of our economy."
Dale said the BoE's QE programme appeared to be working and played down policymakers' August split on whether to expand the programme to 175 billion pounds or 200 billion pounds. "As with changes in interest rates, it will take some time before we see the impact of our purchases feeding through into higher aggregate spending and inflation. However, there are some encouraging signs that the medicine is working," he said. Dale said he had been wary of siding with Governor Mervyn King and two other Monetary Policy Committee members in voting for 200 billion pounds of asset purchases because he was worried it could lead to an unwarranted rise in the price of some assets.
"It is important not to make too much of this difference; all members were of the view that a further degree of monetary stimulus was needed to meet the inflation target." "My own judgement was that the uncertainty surrounding both the economic outlook and the effects of asset purchases made it difficult to have a strong view as to the relative merits," he said.