Global economy weekahead: Living in interesting times

Sun Jul 6, 2014 5:35am EDT
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By Mike Peacock

LONDON (Reuters) - With U.S. stocks hitting record highs on the back of strong jobs growth, the European Central Bank holding out the prospect of printing money and British house prices soaring there is a lot to ponder in the week to come.

The Dow Jones index breached 17,000 for the first time last week, days after the Bank for International Settlements - the global forum for central banks - said that markets were in a “euphoric” state and that keeping interest rates too low for too long could sow the seeds of another crisis.

In fact, the world's major central banks are operating at different speeds and, in some cases, are on opposing paths.

The Bank of England is highly unlikely to lift interest rates from a record low 0.5 percent after its monthly policy meeting on Thursday, but it is looking increasingly certain to be the first major central bank to tighten policy.

The U.S. Federal Reserve is winding up its money-printing program but seems comfortable leaving rates low until well into next year. The European Central bank cut rates last month and may yet have to resort to quantitative easing to ward off deflation.

The British economy is growing fast and its housing market is threatening to burst out of control - prices in London have shot up nearly 26 percent from a year ago.

A Reuters poll of more than 60 economists produced a consensus that UK rates will rise in the first quarter of next year. But it attached a growing, 40 percent chance to a hike before year-end.

Only last year, the Bank was predicting no move until 2016.   Continued...

A trader works on the floor of the New York Stock Exchange July 3, 2014. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS)