The growth has not come from businesses or from any of the measures set out by the BoE to stimulate growth. All that has happened is we have recapitalised the banks and they are still not lending to small business, which is probably the best way to sustain job creation and growth.
So what measures does Mr Carney have at his disposal for forward guidance? Not a lot. We are rapidly approaching the 7 per cent unemployment rate, and his decision to link a rates debate to this figure was one you could instantly see him regret. Other measures are more asset purchase, but again with the Fed talking of tapering as early as this month, the BoE will certainly be more likely to reduce this than increase it.
The main measure that the BoE has is that the UK now owns the banks. Now we have bailed them out we need them to work for us. The BoE has to pressure banks to lend to small and medium business in a structured and responsible way.
The fact of the matter is there were tough calls to be made and, although Mr Carney has not waved a magic wand and fixed the UK economy, we are still here. In 2014 we will see a rise in rates. The UK has a very large ageing population, with inflation-linked pensions, cash and equity in houses.
For the greater good, the younger generation in the UK is set to suffer further. With rates definitely going up (at some point in the next few years) there will be heavy casualties in the housing markets and a great portion of people who will simply be unable to sustain their debt levels.
2014 is a key year for the UK and my underlying thought is that if you are in the UK and struggling with debt now, the next few years will not be kind.
Steve Ruffley is chief market strategist at InterTrader
CURRENCY
The direction of the pound in 2014
Steve Ruffley, chief market strategist at InterTrader, gives his outlook for the UK’s currency:
“In keeping with the view that the UK will be the first to raise rates, we will see the GBP/USD gain strength in the first quarter of 2014 and rising to 1.73289 by the end of the year. We see strong support at 1.5648 and I do not foresee the USD being strong enough to test the 1.53122 so again, after initial dips, I would be buying the GBP on any significant lower levels.”
