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The general improvement in sentiment in the financial markets over the past month has also been evident in the commodity markets.

The situation in Greece and in Spain has obviously caused great concern in London. But the Bank is also aware of the risks as a time when the economy is still in a very fragile state, and of the need to compensate for the fiscal retrenchment by maintaining a supportive monetary policy, and low short-term interest rates. There are therefore reasons for concern about the prospects for sterling. If the latest measures do succeed in reducing the fiscal deficit to manageable levels without aborting the economic recovery, and if the problems affecting the euro continue, or become even more serious, then sterling may well maintain current levels or even appreciate further.

Factory output expanded at a record pace in April, helped by investment spending associated with the export effort, and overseas demand for European capital equipment, and the trend appears to be continuing.

Sentiment in the financial markets has improved over the past month. There has been further evidence that the recovery in the global economy is continuing; the sovereign debt crisis in Europe has not yet produced a major casualty; there has been a modest rally in the euro; and the Chinese authorities have announced that they intend to adopt a “more flexible” policy towards the renminbi that is expected to allow it to appreciate at a slightly faster rate.

There was further evidence that the global economic recovery was still on track, and short-term interest rates remained very low.

However, although the pace of the global economic recovery may be affected, there appears to be enough momentum to enable it to continue.

Japanese Finance Minister Naoto Kan has recently exerted pressure on the Bank of Japan (BOJ) to act more quickly to defeat deflation, saying he wants the falling price trend to end this year. “Two or three years is too long. If possible.

Now consider UK taxation. Already under this current UK government tax, and stealth taxation in particular, has become the soft default option. By the mid-2000s the top marginal rate of tax including all imposts.

In the UK it is obvious that there is no possibility of continuing with budget deficits of some 13% of GDP, the present prospect if no action is taken.

We have made no changes in the balance of our portfolios this month. The strength of the equity markets is encouraging, and we expect that the global economy will continue to recover, and push the markets even higher by year-end.