It’s not just pictures of drunken louts on the streets that’s the problem. The UK really is in a sorry economic state, and even if the picture brightens for the world, it’s not obvious that the UK will come roaring back.
Says Morgan Stanley analyst Graham Secker:
UK looks set to limp out of recession
Macro watchers in the UK have lots to keep their attention just now; however, like a typical episode of Eastenders, the viewing experience is predominantly a miserable one. The poor 3Q GDP number out last week, while subject to perhaps considerable revision, is final confirmation that the UK economy
is likely to just limp out of this recession, certainly in relation to its
global peers. At the same time, monetary policy is swimming in a
sea of QE uncertainty, the financial system is in a state of flux,
bank lending remains anaemic and GBP remains under
significant downward pressure.
Secker is particularly unimpressed with the country’s monetary policy:
Further QE could create more problems than it solves
In the near term, however, the emphasis remains on
unconventional monetary policy and here we hope that our
economists’ view that QE won’t be extended further is correct.
To date, markets have taken a fairly benign view on UK QE;
however, we are concerned that this is now changing and that
any short-term cyclical benefits from additional stimulus would
be outweighed by longer-term structural concerns that are likely
to be expressed in the first instance through FX markets. We
would draw an analogy between QE and medicine – too much
can have unpleasant side-effects and/or get the patient hooked.
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