L&G upbeat on British recovery

Legal & General (L&G) today suggested the British economy is better positioned to recover from the financial crisis than America.

L&G’s leading economic indicator forecasts above consensus growth for the British economy, in contrast with leaked International Monetary Fund (IMF) provisional figures.

James Carrick, an economist at Legal & General Investment Management, says he was more pessimistic on Britain than consensus for most of last year, but that situation has now reversed.

“We are now seeing signs of a recovery that we expect to start coming through by the end of the year,” he says. “Consensus has got progressively worse than us as our bespoke lead indicator shows some growth next year, albeit below trend.”

The indicator now suggests Gross Domestic Product (GDP) growth of about 1.5% in 2010. The improved prospects result from falling mortgage rates, a combination of lower energy prices and a weaker pound, improvements in household balance sheets and an expected recovery in the global economy.

“We think the worst of the manufacturing slump is now behind us,” says Carrick. “[Also] the UK mortgage market is uniquely positioned as we generally have two to three year fixed rate mortgages before they are moved to a variable rate. In the US it’s usually 30 years so households will have to continue to pay more.”

Any recovery in the near term may not indicate a return to a bull market, however, as despite a small improvement, credit conditions remain tight and the outlook for consumer spending uncertain.

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