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UK growth round the corner, says investor

UK growth round the corner, says investor

Category: Economy

Updated: 19/05/2009
First Published: 19/05/2009

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
The recession may well be over by the end of 2009 with growth predicted in the UK economy in the first quarter of 2010.

Henderson Global Investors' new star indicator measures the probability of a recession and takes into account a number of factors in a bid to predict accurately when an increase in GDP is likely, rather than a fall.

"The indicator is less gloomy than the latest Bank of England Inflation Report and suggests the Treasury's forecast of a 1.25 per cent rise in 2010 in GDP is achievable," said the company's chief economist, Simon Ward.

The probability of an economy being in a recession is estimated three quarters ahead, based on a number of factors including money supply growth, companies' liquidity ratio, three month LIBOR, share price and exchange rates.

The indicator accurately predicted the current problems but fell back by to 71 per cent in the first quarter of this year, down from its peak at the end of last year. According to the latest input, a further fall of 33 per cent is predicted from April to June this year.

In short, it suggests a two thirds probability that annual GDP growth in the UK will be positive by the first quarter of 2010.

This welcome trend has been driven by declines in short term interest rates and the effective exchange rate as well as real money growth, share prices rises and the narrower spread of credit.

The Bank of England's programme of quantitative easing is also likely to produce a monetary pick up, according to the investment firm.

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