UK outlook: An oasis of calm?

SPECIAL REPORT

James Alexander, head of equities research at M&G Investments, believes the markets have recognised the change of tone from BoE Governor Mark Carney, and the economy is responding to his flexible and market-sensitive stewardship of monetary policy.

2013 was a good year for central banks in the US and the UK. The naysayers were worrying intensely about fiscal tightening in both countries. At zero interest rates, they claimed monetary policy could not offset the damaging effect of fiscal tightening on aggregate demand. They were wrong. Unconventional monetary policy in both countries did offset the fiscal tightening, and unexpectedly good levels of real gross domestic product (GDP) growth have been recorded. Unemployment has fallen sharply as a consequence, and although incomes may not have kept pace with inflation, at least ma...