Sir Mervyn King’s final report: Reading between the lines
The Bank of England’s outgoing governor, Sir Mervyn King, today released his final forecasts before he retires – and the tone is decidedly more optimistic than it has been in recent years.
Faster economic growth in 1Q2013 has triggered the BoE’s Monetary Policy Committee (MCP) to revise its predictions upwards for the next three years, but it did also warn that the recovery would remain “weak and uneven.”
Since 2007, the Bank has been steadily revising down growth and revising inflation up. But today there’s a more positive outlook, with the report predicting inflation to fall to 2 per cent by the middle of 2015, and an increase of consumer spending and investment in businesses.
Now, perhaps I’m just being cynical, but I cannot help thinking that Sir Mervyn was determined to leave his position with an upbeat message and that today’s optimistic report is a way of spinning his legacy a little.
Let’s look at some other stats that didn’t make the report. Savers’ cash is reducing in value by an estimated 1.6 per cent per annum, real wages are declining by 2 per cent per annum, and even though the headlines are screaming that economic growth is upgraded to 1 per cent, that is likely to be significantly lower if we take into account the new inflation figure.
In short, people should not get carried away with the buoyant report and become complacent about financial planning – and the real benefits it can bring – as savers will certainly remain extremely challenged by interest rates being held down and the creeping inflation.
In fact, despite Sir Mervyn’s “parting gift”, I would reiterate an earlier message that investors should still consider reducing their exposure to cash deposits and increasing their exposure to higher risk-higher return investment opportunities.