Recovery set to continue - Bank of England says

THE economy remains on a recovery track and the weakness of broad money growth may be misleading, the Bank of England’s chief economist, Spencer Dale, said in a report published today.

“The recovery in the United Kingdom looks set to continue,” Dale wrote in the foreword to the bank’s latest bulletin, or collection of research articles.

Domestic and international issues would help determine the strength and durability of the recovery, he said.

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The economy unexpectedly contracted in the fourth quarter of last year but recent data has suggested it is picking up again.

Dale joined Andrew Sentance and Martin Weale in voting to raise interest rates last month to curb inflation, which is running at double the bank’s 2 per cent target. But the three were outnumbered by the other six members of the Bank’s Monetary Policy Committee who voted to keep rates at 0.5 per cent.

Dale said the correlation between growth in broad money and GDP had changed as a result of the financial crisis, and a given level of growth now was likely to be associated with weaker money growth than before.

Headline M4 broad money supply contracted in January at its fastest annual pace since records began in 1983, Bank figures showed earlier this month.

GDP fell by 0.6 per cent in the last three months of 2010, but this was partly down to harsh weather and most economists expect a rebound in the first three months of this year.