13th February 2015
Improvements in UK growth have pushed European stockmarkets to a seven-year high.
Optimism is running high after the Office of National Statistics recorded UK growth of 3.1%, an increase on the 2.6% forecasted. This was not the only good news for Europe, as Greek officials agreed to discuss a new financial arrangement with the country’s creditors which gave hope that Greece’s new far-left party is not planning to default on its debt.
The Stoxx Europe 600 index reached its highest level since 2007 in early trading while the German DAX climbed to an all-time high over 11,000.
Third quarter growth in the eurozone economy was 0.3% and better than expected as its largest constituent Germany grew 0.7%, ahead of economists’ 0.3% forecast.
Ben Brettell, senior economist, said layers of good news from Europe could prove that the conditions are improving.
‘This is the latest in a series of signs that the economic climate might be improving, and the European Central Bank’s quantitative easing (QE) programme might therefore benefit from a following wind,’ he said.
‘Most notably the credit cycle appears finally to be showing improvement – after two and a half years of contraction, eurozone bank lending to the private sector is growing again.’
However, Brettell said ‘the jury is still out on the effectiveness of QE’.
‘One thing we do know is that it is likely to boost stockmarkets, but its effects on the economy are less clear,’ he said. ‘A Bank of England study suggests QE in the UK did little to increase bank lending, and it certainly won’t deliver the structural reforms the eurozone so badly needs.
‘However, QE should at least convince markets that Mario Draghi is committed to fighting deflation. If markets and the public are confident that inflation will return to the ECB’s target, it could become a self-fulfilling prophecy.’