UK economy shows signs of life as Carney starts at BoE

By William Schomberg and Olesya Dmitracova

LONDON (Reuters) - There was good news for Mark Carney when he took over as governor of the Bank of England on Monday - some fresh signs of recovery in Britain's economy.

A couple of hours after Carney beat the commuter crowds on London's Underground to start his first day at the central bank, data showed that British manufacturing enjoyed its strongest growth in more than two years in June.

New orders rose even faster, a hopeful sign that momentum in the long-weak factory sector might be sustained.

Separate figures showed Britain's housing market, which is picking up after spending much of the past few years in the doldrums, got another fillip. Mortgage approvals in May hit their highest level since December 2009.

An improvement in two of the sectors hardest hit by the financial crisis might give Carney reason to move cautiously as he attempts to get the British economy into a higher gear.

"I am not sure he is the dove that everyone thinks he is, especially with the economy showing signs of life," said George Buckley, UK economist at Deutsche Bank.

If surveys of other sectors this week matched manufacturing, they could soon be at a level at which the Bank tightened monetary policy in the past, Buckley said, cautioning that the recovery could yet prove short-lived.

CARNEY MEETS THE BANK'S POLICYMAKERS

Carney, the former governor of the Bank of Canada, has said he wants to get the economy up to "escape velocity" and is widely expected to deploy new tactics to achieve it.

He has yet to show whether he might push for more bond-buying by the Bank which would pump fresh money into the economy. That was something his predecessor Mervyn King favoured but was ruled out by a majority of the bank's other policymakers.

Carney is expected to use the kind of policy he pioneered as governor of the Bank of Canada by giving markets, households and businesses a clear steer of how long the Bank will keep interest rates at their record low of 0.5 percent.

He chairs his first meeting of the bank's Monetary Policy Committee on Wednesday and Thursday.

Television cameras were given unusual access to film him in a preparatory meeting with fellow MPC members and other bank staff on Monday. The meeting kicked off with a bank official talking about the recent rise in yields on government debt.

The rise in borrowing costs - which accelerated in markets around the world after the U.S. Federal Reserve outlined a possible timetable for ending its bond-buying in late June - might help those arguing for the Bank to provide more stimulus for the British economy.

However, a big majority of economists expect no ramping up of the bank's bond-buying program at this week's policy meeting, so soon into Carney's governorship.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) jumped to 52.5, its highest level since May 2011. It was stronger than analysts' forecasts in a Reuters poll for a reading of 51.5.

The separate credit data showed that in addition to rising mortgage approvals, consumer credit jumped by a net 725 million pounds, its largest increase so far this year.

But the numbers also underscored one of the big problems facing the British economy - weak credit flowing to businesses.

Lending to non-financial firms fell by 1.27 billion pounds in May. Lending to smaller firms dropped by 452 million pounds.

"We remain cautious about the prospects for the rest of this year," said Rob Wood at Berenberg Bank. "There will probably be some more disappointments before the UK more decisively returns to growth."

(Additional reporting by David Milliken; Editing by Toby Chopra)

Source: http://news.yahoo.com/uk-economy-shows-signs-life-carney-starts-boe-124508477.html

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