Financial directions - Economic recovery falls short of forecasts.

(From Financial Director)

Byline: Graeme Johnston.

Economic background

Data on the economy in the US tended to fall short of forecasts in March.

This was in contrast to the experience of recent months. In particular, the sluggishness of the labour market was seen as disappointing for the longevity of the recovery. In the Eurozone, recent economic releases indicate that earlier positive signals have not translated into a pick-up in activity.

The consensus is that the ECB will cut interest rates in the next few months, despite its economic assessment after making no change at the start of April.

The recovery in Japan continues to surprise by its strength. The broadly based TOPIX index responded with a 16% rise in sterling terms, boosted by the strength of the yen as the Bank of Japan cut back on intervention to support the US dollar. The UK equity market responded less positively to unexpected buoyancy in the housing market - making another interest rate rise in the middle of the year seem all but inevitable.