David Miles is happy about the progress of the UK economy (Reuters)
Britain's economy is turning a corner, according David Miles, one of the most dovish members of the Bank of England's rate-setting Monetary Policy Committee.
Miles has been a persistent advocate for the BoE's ultra-loose monetary policy that has seen the base interest rate held at its all-time low of 0.5% and the huge asset buying programme of UK Treasuries.
"My own interpretation...is that a lot of these market moves in interest rates and exchange rates are really a response to positive economic news," Miles told Reuters in an interview.
Miles's optimism comes in light of other positive statements from BoE officials and documents.
At Mark Carney's first appearance as governor before the Treasury Select Committee, the Canadian said he thought a gradual recovery was underway.
Furthermore, the BoE revised up its initial estimate of UK GDP figures for the third quarter of 2013 from 0.5% in its August Inflation Report to 0.7% in the September MPC minutes.
Similarly, growth in 2013 has been surprisingly robust with a 0.3% expansion in the first quarter and 0.7% in the second quarter.
Could US Recovery Destroy UK's?
Fears that a rise in US market rates and the scaling down of quantitative easing by the Federal Reserve could destroy a fragile UK recovery have been exaggerated, Miles said.
"People shouldn't believe, and I don't think many people do believe, that somehow the position of the UK yield curve is inexorably tied to what happens to the US curve," he said.
Markets were surprised on Wednesday when the Federal Open Markets Committee decided to keep the wind down of its monthly $85bn purchase of assets on hold.
Implications for Carney's Forward Guidance
Such worries about a rise in US interest rates and better UK economic indicators have made markets sceptical of Carney's revolutionary forward guidance unveiled over the summer.
UK sterling appreciated to more than 3% on a trade weighted basis since early August and gilt yields on UK Treasuries spiked sharply, as markets cast doubt that interest rates will remain low until 2016.
Miles conceded "it may well turn out the market is right", but he said that forward guidance remains important to the economic recovery as the BoE does not want to hike interest rates and harm it.
The BoE is trying to persuade the markets and general public on that point, he said.
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