Strong data should not keep Carney from doing the right thing
The couple of days have brought a number of data releases that indicate that a recovery is underway in the British economy. This is from the Telegraph today:
A closely-watched gauge of activity in the sector rose to a much higher than expected 56.9 in June, up from May's 54.9, following the sharpest rise in new business for six years. Any reading over 50 indicates growth.
And also this from the Telegraph (from yesterday):
It came as the latest purchasing managers’ index (PMI), the monthly survey from Markit, showed that the construction sector continued its small bounce-back. The PMI’s reading was 51.0 in June, up by 0.2 from May, where anything above 50 mark indicates growth.And finally this on from Monday:
A key index of activity in the manufacturing sector jumped to 52.5 in June from an upwardly revised 51.5 in May. A reading of more than 50 indicates growth. This came in well above economists’ expectations of 51.5, and is the highest reading since May 2011, largely driven by a jump in new orders. Manufacturers attributed the stronger demand at home and overseas to growing business confidence, better weather and product launches. Every part of the manufacturing sector improved in June, with clothing and food and drink recording the strongest rates of growth. Britain’s manufacturing sector has been in expansionary territory since April, a promising sign that the overall economy will record growth this quarter.So there is no doubt that this week has brought a lot of good news for the UK economy. Add to that that the Bank of England got a new governor on Monday - the Canadian Mark Carney. Carney's paradox - good news might makes life harder for Carney
There is a paradox in the strong British macroeconomic numbers - it will make it harder to convince his new colleagues on the BoE's Monetary Policy Committee to ease monetary policy and it make it even harder to get them to agree on setting an nominal GDP level target.