The Bank of England's forecast of a recovery later this year is showing signs of fruition, a central bank policymaker said on Tuesday, and the BoE detected a new readiness by some big lenders to boost credit to business.
Britain's annual living costs fell in March for the first time since 1960 but analysts said this reflected repeated interest rate cuts more than deflationary risk as monetary and fiscal action start to stem Britain's credit-driven recesssion.
"We saw the prospect of a slight improvement in the economy later this year and more significant growth as we moved through 2010," hawkish BoE Monetary Policy Committee member Andrew Sentance said in a speech in London.
"Though there are still a lot of risks, the economic data since February has been broadly consistent with this projection."
Newly-appointed BoE policymaker Paul Fisher said he was confident the central bank's unprecedented 75 billion pounds quantitative easing programme would help the economy, but it remained unclear how much money the BoE should print.
"At the moment it looks to be calibrated reasonably well, at that right size," he said.
Terry Leahy, chief executive of top UK retailer Tesco, whose firm beat forecasts with a 10 percent rise in underlying annual profit said British consumer spending appears to be stabilising, but it was too early to forecast when a recovery would come.
The broadly upbeat message will be a relief to embattled Prime Minister Gordon Brown ahead of Wednesday's crucial Budget.
Brown's ruling Labour Party is well behind the opposition Conservatives in opinion polls ahead of an election due by mid-2010 and is pinning much of its hopes of a political recovery on an economic turnaround before then.
Two opinion polls showed on Tuesday Brown was losing support for his handling of the economy.
Analysts do not expect any Budget measures of the size seen in November, when finance minister Alistair Darling pumped 20 billion pounds into the economy, but action to tackle what BoE arch-dove David Blanchflower calls a "jobs crisis" is expected.
Government sources have told Reuters that Darling is expected to initiate at least 3.5 billion pounds ($5 billion) of targeted measures to help the economy through the recession.
INFLATION COOLS
Figures from the Office for National Statistics showed the headline annual rate of consumer price inflation easing to 2.9 percent in March from 3.2 percent in February — the lowest since March 2008.
The broader measure of retail price inflation, which includes housing costs and is used in many wage negotiations, fell to stand 0.4 percent lower than a year ago — the first negative reading since March 1960.
Analysts said it was unlikely that Britain would succumb to a protracted period of price falls, or deflation, because the drop in RPI was helped by cuts in interest rates to a record low of 0.5 percent.
Headline CPI has declined less sharply than expected but policymakers believe it could eventually fall well below the BoE's two percent target as a result of the economic downturn.
Darling is expected to slash his own growth forecasts to factor a fall in output of about 3 percent this year but is also likely to predict a firm recovery next year because of measures already taken to foster growth.
On top of November's stimulus package, monetary policy action and efforts to prop up Britain's banks, a weak pound is also expected to improve the competitiveness of British exporters.
And there are tentative signs that banks are growing more confident about lending — regarded by government and the BoE as crucial to getting the economy moving again.
A new BoE report on lending, which takes in up-to-date figures from major lenders, showed more of an appetite to lend to firms, although demand for mortgages and other consumer loans was expected to remain weak over the coming months.
"The survey suggests that the various policy measures undertaken by both the central bank and the government to boost bank lending are starting to have a beneficial impact," said Howard Archer, an economist at Global Insight.
"This is critical to recovery prospects."
