(eToro Blog) According to George Osborne, the U.K. Finance Minister, there are plenty of reasons to be optimistic about the economic outlook in 2012, despite the growing threat of stagnation brought about by its Eurozone neighbor. In a recent address, Mr. Osborne highlighted the government’s efforts to reduce a record budget deficit in the face of an economic slowdown, pointing out that inflation has lowered and interest rates have remained consistently low. Yesterday, the Bank of England reaffirmed its commitment to keeping those low rates, holding the benchmark lending rate at 0.5%.
Analysts point out, however, that statistically the data shows that the U.K. is on the verge of recession, but Mr. Osborne feels that the economy has turned a corner, because the private sector is hiring again, borrowing costs are lowering and the 2012 Olympic Games should provide a huge boost to several sectors, thus bringing in significant revenue.
Indeed, recent data points show that inflation is easing; the U.K.’s Office of National Statistics earlier reported December’s produce prices, both inputs and outputs, fell below expectations. On a year-over-year basis, input prices were reported at 8.7% down from the revised 13.6% in November, and off the consensus call of 9.1%. Output prices, year-over-year, also fell, dropping to 4.8% from 5.4%, with the analysts’ forecasting a decline to 5.0%. The Bank of England has predicted that inflation will continue to decline, falling below the 2% target by the year’s end.
Mr. Osborne acknowledges that the Eurozone’s crisis will continue to weigh on the U.K. economy, but has faith that the leadership there has made a commitment to ensure the Euro’s survival. Nonetheless, he believes that some hard, perhaps painful, decisions will need to be made, citing the steps that the British government has undertaken to deal with its own debt.
Optimism appears to be lacking is also prevalent on the eToro trading floor; sentiment among traders of the GBP/USD pair, recently higher at $1.5348, is primarily bearish. Sterling trader santosh appears to be optimistic about the U.K.’s outlook, with nearly a dozen long positions with targets ranging from 1.550 out to 1.6623.
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