Elsewhere, cuts in rates by Iceland, Denmark and Russia showed that, despite improving financial markets, central banks remain on the side of easier policy. Indeed, the ECB President, Trichet, stated that interest rates in Europe may not have yet reached a floor.
According to Paul Niven, head of asset allocation at F&C Investments, “In the UK, there has been mounting evidence of improving sentiment on the economy and an increasing expectation that growth will return later this year and perhaps in the third quarter. Indeed, positive surprises on the service sector PMI as well as a moderation in contraction in manufacturing have been the latest data points viewed as indicating that improvement is coming. Furthermore, evidence from the Halifax yesterday, reporting the sharpest monthly house price rises in seven years is supported by a broad improvement in other housing related indicators such as mortgage approvals, albeit from very depressed levels.
”Despite the signs of improvement both the ECB and Bank of England confirmed their commitment to quantitative easing, with the ECB progressing despite criticism from the German chancellor Merkel who argued against asset purchases by the central bank. The ECB confirmed that they will start to purchase €60 billion of covered bonds next month while the Bank reiterated their plan to buy £125 billion of government and corporate bond.”
