Both India and China (which latter recently relaxed its currency’s link to the US dollar, before suddenly re-establishing the link at its highest level since July 2005) are massive potential markets with pent-up domestic demand for goods that could act as a boost for the rest of the world, if it is allowed to mature. Relatively weak sterling could help the UK if exporters are prepared to address these markets in the right way.

The G20 leaders decided that there would be no global levy on banks, but that each country should make their own decisions. However, it was agreed that the question of capital requirements should be addressed at the November meeting in Seoul.

Views are mixed on what impact an interest rate rise might have. On the one hand, anything that increases costs to industry can be expected to push factory gate prices up, thus increasing inflation; on the other hand, the Bank of England argues that low interest rates can make it more difficult to control inflation. It is largely relying on overcapacity to prevent price rises at the moment, but others feel that this is not the case.

The FTSE250 also fell during the month, losing -2.81%, while the Dow Jones finished June -3.58% lower and the Eurostoxx50 lost -1.42%. The Japanese Nikkei225 was -5.36% down on the month, ending the half-year almost 13% lower than its value at the start of 2010. Oil rose by 1.34% in June to end at US$75.01 per barrel for Brent Crude 1-month futures, but is still some 3.8% below its price at the start of the year. Sterling rose 2.8% against the dollar and 3% against the euro.

While it is incumbent on any civilised society to look after those who cannot provide for themselves, building up an underclass of people who have no experience of work is not only bad for them, it is bad for society as a whole; and the economy needs everyone who can, to join in and work in order to generate tax revenue to help us out of the mess more than a decade of profligate spending has got us into as a country.

One positive result of the Budget was that the credit rating agencies appear to be satisfied that we are heading in the right direction, as they have left our AAA rating in place. Had they not done so, the cost of our massive national debt repayments could have sky-rocketed, making it far more difficult for us to dig our way out of the hole.

The OBR will be involved in making an independent assessment of the public finances and the economy for the emergency Budget. But more importantly, forecasts will no longer be determined by the Chancellor’s judgements; he will have to accept the OBR’s forecasts for every future Budget and Pre-Budget Report. The OBR’s independence will ensure that policy is made on an unbiased view of future prospects, improving confidence in the fiscal forecasts.

Chancellors will, of course, retain responsibility for fiscal policy and will set targets for fiscal policy. They will, however, no longer be able to move the goal-posts, as the previous incumbent did with the so-called “Golden Rule” on borrowing. In each Budget and Pre-Budget Report the OBR will confirm whether the Government’s policy is consistent with a better than 50 per cent chance of achieving the forward looking fiscal target set by the Chancellor.

On the other hand, manufacturing output has continued to rise and credit conditions, while still tight, appear to be relaxing – although this is largely benefiting larger businesses. Employment intentions are also showing early signs of recovery with some companies in the business services sector reinstating trainee and graduate recruitment schemes to cope with expected demand. However, while employment in the private sector is at least stable, that in the public sector is set for headcount reductions.

There has also been a slight recovery in pay rates, but higher employment costs largely relate to a return to full time working, where there had previously been a reduction in hours.

While there is still some economic growth – especially if what the Bank of England says are temporary factors affecting inflation quickly pass out of the system – this might not be a problem. But the impact of quantitative easing is still such that there is more money in the economy than there should be and this can be inflationary.

According to the Bank of England’s own projections in its May Inflation Report, there is more than a 75% chance of overshooting the 2% CPI target during the second quarter and a 25% to 50% chance of overshooting the target in every quarter from now until the second quarter of 2013. This is actually worse than its forecasts in the February Report.

The mid-cap FTSE250 lost -7.03% of its value last month, but is still more than 3.5% higher than at the start of 2010. Meanwhile, on the other side of the “Pond”, the Dow Jones was down -7.92% and the Nasdaq100 -8.29%. Worst performer for the month was the Nikkei225, which lost a whopping -12.17% of its value during May.

Gold, which had peaked at more than US$1,240 per troy ounce during May, ended 3.48% higher at US$1,219.33, while oil, which peaked at about US$90 per barrel for Brent crude 1-month futures, ended the month -15.35% down at US$74.02.

Sterling fluctuated significantly against the euro during May, hitting a low of €1.14 before ending 2.91% higher at €1.184. Conversely, it lost some -4.9% of its value against the dollar (which is why fuel prices have not fallen as much as crude prices might suggest), ending at US$1.45.

Unemployment rose slightly during the first quarter of 2010, just scraping above 2.5 million; which is good news for the economy generally, even if not for those directly affected. With the economy set to continue growing, we can be hopeful that the employment rate will soon bounce back to regain its 0.3% fall (to 72%) over the first quarter.