The British economy has avoided a double dip recession as the economy returned to positive growth in the first quarter of 2012 according to David Kern, the chief economist at the British Chambers of Commerce.
Trading position improves steadily
Britain’s trading position continues to show steady improvement as exports continue to grow more quickly than imports, although the trade deficit is still widening (up to 7.5bn in January from 7.2bn in December) and the services surplus still narrowing (down from 6bn in December to 5.8bn in January).
The rate of growth in the trade gap is slowing and the UK’s trade deficit was less than expected in January thanks to strong exports of cars to the US, China and Russia worth £531m more than in December.
David Kern observed that “Taking monthly fluctuations into account, the figures confirm a steady improvement in Britain’s trading position.” but he also cautioned that “the road ahead will be difficult” because given the problems facing the global economy and the debt crisis in the eurozone, British exporters still face huge challenges to maintain their position in international markets.
Long-term bonds to cut interest payments
The economic recovery will also be boosted by news that the government is considering issuing a new long-term bond, a form of IOU which pays interest before being paid back after a fixed term, that it hopes will cut the country’s interest payments for years.
At present, the UK government issues bonds that typically give the government 30 years to repay in full, however the new plan is looking at issuing bonds with a 100-year repayment date, or even longer.
The theory is that these super long-term gilts would allow the government to lock in the current record low interest rate for a very long time and if the bond proved popular with investors future governments would pay less debt interest for years to come.
Treasury officials have described it as being like the country taking out a low rate fixed-term mortgage, and official figures reveal that the low cost of long-term interest rates will save the country £20bn in debt interest over the next five years.
That is the equivalent of reducing the national debt by approximately £1,000 for every UK household.
Credit easing for small businesses
The Treasury is also expected to spell out the details of its credit easing plan, to underwrite loans for small businesses, by next Monday ahead of the Budget on 21 March.