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Outlook of British economy 'uncertain'

WHILE surveys have pointed to some improvement in the British economy, the outlook remains highly uncertain and may not become clear until late autumn, Bank of England Deputy Governor Paul Tucker said yesterday.

In a speech to the Association of British Insurers, Tucker also said the market was right to assume the BoE would tighten monetary policy when the inflation outlook warranted it but stressed the need to maintain perspective.

Markets are currently pricing in interest rates rising only early next year.

"Since the beginning of the year I have felt that it will take until late autumn at least to have any kind of a handle on broadly what type of outlook we face. My view on that hasn't really changed," he said.

"Over recent weeks near-term indicators, notably the business surveys, have improved a bit ... But a sense of perspective is needed if these apparently small steps forward are not to be frittered away. Inevitably, the medium-term outlook remains highly uncertain and the path back to anything like normality can only be gradual."

A number of indicators in recent days have been pointing to the worst being over for the British economy which shrank by 1.9 percent in the first three months of the year. In particular, one purchasing managers' report indicated the service sector returned to growth in May.

But Tucker said he was concerned whether the financial system was capable of generating enough credit to foster recovery, given that while the reopening of high-grade bond markets had been encouraging, bank lending was subdued.


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