There is little pushing the Fed to tighten policy. The US is not suffering from the same price pressures as other economies and labour market improvement remains the Fed’s number one concern. Moreover, there have emerged serious question marks over the US economic outlook amid a raft of awful growth figures. The Fed and BoE policy outlooks are very similar; tighter policy can only be considered when sustained growth emerges. The threat of a double-dip recession in both economies remains realistic, and premature tightening could be the tipping point.
Accordingly, we are probably looking at the middle of next year for a Fed rate hike. Bernanke looks highly likely to maintain his “extended period” rhetoric with regard to the Fed’s current ultra-loose monetary policy. However, a third round of quantitative easing would probably only be resorted to if the US did fall back into negative growth. Bernanke is likely to stress the recent weakness of US growth and in the absence of any hints to future tightening, the US dollar looks likely to come under a little pressure. The dollar will remain weak for many months to come, but hopes for hawkish Fed rhetoric are so sparse that we are unlikely to see the greenback suffer any major losses for today at least.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Tuesday 21 June 2011
Tuesday 14 June 2011
UK inflation hits expectations and fails to move the markets
With interest rate policy one of, probably the major driver in the currency market, inflation data is key. The main tool to control inflationary pressures is through tighter monetary policy; that is to say, by raising interest rates. A high inflation figure increases the likelihood of an interest rate rise, or at least brings forward expectations of such a rise.
Today’s UK inflation figure for the month of May came in at 4.5% y/y, the same figure as the previous month (though prices rose by 0.2% on the month). This was in line with median forecasts and as such, failed to trigger any major sterling moves.
In fact it was the rumour of a weaker figure (4.3%), which surfaced in the half hour leading up to the 9:30am announcement and moved the markets the most. Sterling fell 40 pips or so against the dollar and 30 pips or so against the euro as suspicions mounted. A weaker figure would really have eased the pressure on the MPC to contain inflation through an interest rate rise, and sterling would probably have sold off quite badly.
The 4.5% does little to change market expectations of a rate rise, which remain delayed until 2012. The MPC have expressed that they see UK inflation hitting and perhaps exceeding 5.0% in coming months. They have also repeatedly confirmed (with a couple of exceptions) that UK growth is too fragile to accommodate an interest rate rise. Indeed, figures from the UK economy have been extremely disappointing of late, and we look set to learn of another poor quarter of growth.
Some brave forecasters are betting on a November UK rate rise, predicting inflation will head too high for the MPC to keep sitting on their hands. We just can’t see this happening, we are probably more pessimistic than consensus, and are looking to the second quarter of 2012 for a UK hike.
Where does this leave sterling? Well, broadly unchanged. We still remain in wait for decent growth figures, which are unlikely to come this week. UK retail sales are due out on Thursday, and are expected to show a contraction after April’s bumper month. Sterling has enjoyed a strong start to the week, but it could well come under pressure in coming sessions.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Today’s UK inflation figure for the month of May came in at 4.5% y/y, the same figure as the previous month (though prices rose by 0.2% on the month). This was in line with median forecasts and as such, failed to trigger any major sterling moves.
In fact it was the rumour of a weaker figure (4.3%), which surfaced in the half hour leading up to the 9:30am announcement and moved the markets the most. Sterling fell 40 pips or so against the dollar and 30 pips or so against the euro as suspicions mounted. A weaker figure would really have eased the pressure on the MPC to contain inflation through an interest rate rise, and sterling would probably have sold off quite badly.
The 4.5% does little to change market expectations of a rate rise, which remain delayed until 2012. The MPC have expressed that they see UK inflation hitting and perhaps exceeding 5.0% in coming months. They have also repeatedly confirmed (with a couple of exceptions) that UK growth is too fragile to accommodate an interest rate rise. Indeed, figures from the UK economy have been extremely disappointing of late, and we look set to learn of another poor quarter of growth.
Some brave forecasters are betting on a November UK rate rise, predicting inflation will head too high for the MPC to keep sitting on their hands. We just can’t see this happening, we are probably more pessimistic than consensus, and are looking to the second quarter of 2012 for a UK hike.
Where does this leave sterling? Well, broadly unchanged. We still remain in wait for decent growth figures, which are unlikely to come this week. UK retail sales are due out on Thursday, and are expected to show a contraction after April’s bumper month. Sterling has enjoyed a strong start to the week, but it could well come under pressure in coming sessions.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Thursday 9 June 2011
Euro suffers despite July ECB rate rise promise
The Bank of England kept interest rates on hold at 0.5% today, as it has done every monthsince March 2009. In reality, there wasn’t even an outside chance of a UK rate rise - the UK growth figures have just been too poor of late. Long-term sabre-rattler Andrew Sentance left the MPC last month, and now Mervyn King and his MPC doves are more in control than ever. Even if they did wish to change stance, the MPC would struggle to justify a rise before 2012, with growth so weak and household incomes so squeezed.
The IMF cut its forecast for UK growth in 2011 from 2.0% to 1.5% earlier this week, and we could well be in for a second quarterly growth figure as low as 0.2%. Mervyn King has repeatedly indicated that the UK’s soaring inflation levels are down to temporary factors that will subside next year, so the MPC are likely to ride out these high prices. With UK growth so soft, King is loath to hit the British economy with higher borrowing costs. Indeed, this morning’s UK trade balance data suggested consumer demand is really suffering at present, which took the shine off a narrowed deficit.
Unsurprisingly, the market didn’t respond to the BoE’s announcement; the release of the MPC minutes in a fortnight is likely to prove more market-moving. The market didn’t respond to the ECB’s unchanged 1.25% interest rate either. However, the market has moved since Trichet's press conference, and it has been a significant move.
Trichet delivered on the “strong vigilance” message with regard to upside risk to price stability, so a July rate rise is now more or less guaranteed. However, the euro has suffered a substantial slide on the news. The July rate rise was clearly fully priced in and traders have obviously seen now as an opportunity to take profit; the euro has given away half a cent to sterling, and over a cent to the US dollar. This may also be a reflection of some disappointment that Trichet refused to give any signal as to rate rises beyond July.
Despite the euro’s fall, the long-term outlook for a strong euro remains intact. Though with the market likely to refocus on the Greek situation in coming sessions, the euro could have some further downside in the short-term. Only when a Greek resolution arrives is the euro likely to really kick on from here. Sterling still looks fundamentally weak; none of its gains today have been made on its own merits.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
The IMF cut its forecast for UK growth in 2011 from 2.0% to 1.5% earlier this week, and we could well be in for a second quarterly growth figure as low as 0.2%. Mervyn King has repeatedly indicated that the UK’s soaring inflation levels are down to temporary factors that will subside next year, so the MPC are likely to ride out these high prices. With UK growth so soft, King is loath to hit the British economy with higher borrowing costs. Indeed, this morning’s UK trade balance data suggested consumer demand is really suffering at present, which took the shine off a narrowed deficit.
Unsurprisingly, the market didn’t respond to the BoE’s announcement; the release of the MPC minutes in a fortnight is likely to prove more market-moving. The market didn’t respond to the ECB’s unchanged 1.25% interest rate either. However, the market has moved since Trichet's press conference, and it has been a significant move.
Trichet delivered on the “strong vigilance” message with regard to upside risk to price stability, so a July rate rise is now more or less guaranteed. However, the euro has suffered a substantial slide on the news. The July rate rise was clearly fully priced in and traders have obviously seen now as an opportunity to take profit; the euro has given away half a cent to sterling, and over a cent to the US dollar. This may also be a reflection of some disappointment that Trichet refused to give any signal as to rate rises beyond July.
Despite the euro’s fall, the long-term outlook for a strong euro remains intact. Though with the market likely to refocus on the Greek situation in coming sessions, the euro could have some further downside in the short-term. Only when a Greek resolution arrives is the euro likely to really kick on from here. Sterling still looks fundamentally weak; none of its gains today have been made on its own merits.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Wednesday 8 June 2011
Moody's: Causing trouble in the UK and the EU.
The pound suffered a sharp decline this morning following media reports that the UK could lose its AAA credit rating if the government failed to meet its economic and fiscal targets. Moody’s had made similar indications in March, but the market responded nonetheless. However, sterling has recovered to finish slightly higher than where it started the day against the euro, though it has lost ground to US dollar.
The warning from Moody’s tells us little that we don’t already know. If the UK economy remains teetering on the edge of a double dip recession and if the government cannot reduce its enormous deficit, then it stands to reason that we should lose our AAA rating.
The pound is a very unappealing asset at present but today’s news is barely news, it merely states the obvious. However, data has been reasonably scarce this week and investors were prompted to act.
Moody’s has also been in the news on a potentially much more crucial matter. On the Greek debt issue, Moody’s has made its feeling known on the ECB’s endorsement of a rollover of Greek bonds. Trichet has given his support to the measure of requiring Greek bondholders to reinvest their funds in Greece upon the maturity of existing debt. A Moody’s head has classified such an event as a default, because it is a significant change to the terms of the initial agreement, and the rollover would almost certainly not be voluntary.
What’s more, as an FT Alphaville blog notes, if the ECB was seen to allow an effective default, this would trigger the downgrading of other peripheral nations’ debt, and so the contagion risk is highlighted again. So from this perspective, the ECB can dress it up as ‘soft restructuring’ all it likes, but the ratings agencies and market may see it as another thing altogether. So while most are confident a resolution will come soon, this does not necessarily rid the eurozone of the threat of debt contagion.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
The warning from Moody’s tells us little that we don’t already know. If the UK economy remains teetering on the edge of a double dip recession and if the government cannot reduce its enormous deficit, then it stands to reason that we should lose our AAA rating.
The pound is a very unappealing asset at present but today’s news is barely news, it merely states the obvious. However, data has been reasonably scarce this week and investors were prompted to act.
Moody’s has also been in the news on a potentially much more crucial matter. On the Greek debt issue, Moody’s has made its feeling known on the ECB’s endorsement of a rollover of Greek bonds. Trichet has given his support to the measure of requiring Greek bondholders to reinvest their funds in Greece upon the maturity of existing debt. A Moody’s head has classified such an event as a default, because it is a significant change to the terms of the initial agreement, and the rollover would almost certainly not be voluntary.
What’s more, as an FT Alphaville blog notes, if the ECB was seen to allow an effective default, this would trigger the downgrading of other peripheral nations’ debt, and so the contagion risk is highlighted again. So from this perspective, the ECB can dress it up as ‘soft restructuring’ all it likes, but the ratings agencies and market may see it as another thing altogether. So while most are confident a resolution will come soon, this does not necessarily rid the eurozone of the threat of debt contagion.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Monday 6 June 2011
A Greek default: What would it mean?
An interesting Robert Peston blog (BBC) with a somewhat doomsdayish tone discussed the possible ramifications of Greek default. The US exposure to the banks of the eurozone periphery is very significant. The US has the second largest exposure to Greece. A Greek default would almost certainly have knock-on effects throughout the European banking system, not least in the periphery. Worryingly for the US, it has the third largest exposure to Portuguese and Irish debt and a whole lot more vested in Spain, Italy and various other nations.
With the US debt ceiling debate still roaring on, the US banking system would be rocked by a Greek default and the others that would inevitably follow. The global economy would plunge back into a recession, that’s almost certain. Indeed, in light of the recent slowdown in global growth, some are forecasting a double-dip regardless.
What would the consequences of a genuine Greek default be for the single currency? Well, the euro has recovered strongly in the past week, in line with greater confidence that the Greek situation is verging on a resolution. GBP/EUR hit €1.16 and EUR/USD hit $1.40, but these two pairs are now at $1.12 and $1.46 respectively. Should the Greek situation truly implode (unlikely now), the euro would suffer hugely, and the survival of the euro itself would come into question. US banks will have been very encouraged by Merkel’s comments last week, indicating Germany’s commitment to the euro is as strong as ever.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
With the US debt ceiling debate still roaring on, the US banking system would be rocked by a Greek default and the others that would inevitably follow. The global economy would plunge back into a recession, that’s almost certain. Indeed, in light of the recent slowdown in global growth, some are forecasting a double-dip regardless.
What would the consequences of a genuine Greek default be for the single currency? Well, the euro has recovered strongly in the past week, in line with greater confidence that the Greek situation is verging on a resolution. GBP/EUR hit €1.16 and EUR/USD hit $1.40, but these two pairs are now at $1.12 and $1.46 respectively. Should the Greek situation truly implode (unlikely now), the euro would suffer hugely, and the survival of the euro itself would come into question. US banks will have been very encouraged by Merkel’s comments last week, indicating Germany’s commitment to the euro is as strong as ever.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Thursday 2 June 2011
May Monthly Report
May was broadly speaking a risk-off month, with commodity prices sliding significantly and the Greek debt crisis causing widespread market uncertainty. Central bank monetary policy took a backseat as the major currency market driver, though interest rate speculation was still in evidence under the surface. Specifically, it was the inability of the Bank of England and the US Federal Reserve to tighten policy (due to the poor performance of the US and UK economies), which has stopped their currencies from truly capitalising on the eurozone debt issues.
The single currency has suffered from the most severe debt concerns seen in months. Rumours of a Greek euro-exit and a more general euro-collapse inevitably spooked investors. Greece looks set to remain in the euro and the dominant voices out of the negotiations insist that there will be no debt restructuring. An additional aid package in return for greater austerity measures and privatization seems likely to be the substance of a resolution at this stage, and this should arrive by the end of this month. Much uncertainty still remains, not least over whether the IMF will be providing Greece with its share of the next tranche of Greek bailout aid.
Despite a broad upturn in sentiment towards the Greek situation, the risks of debt contagion have become all too apparent in recent weeks. We have seen rumours of a Greek debt restructure trigger rating agencies to downgrade the economic outlook of other struggling nations such as Belgium and Italy. We have also seen the Spanish government suffer a crushing electoral defeat which places the country’s necessary austerity measures in doubt. Portugal did receive a bailout, but borrowing costs throughout the periphery have scaled new heights.
Safe-haven currencies have benefitted from the eurozone uncertainty. The US dollar therefore had a stronger month, but it remains a fundamentally unappealing currency (due to a downbeat economic outlook and ultra-loose monetary policy). Sterling has weakened against the dollar, but has reached healthier levels against the euro as investors were forced to look for alternatives.
Sterling/Euro
This pair made some decent gains over the month, climbing two cents to trade at €1.14. However, sentiment towards the UK economy has not improved. It may even have worsened since the disappointing first quarter growth figure of 0.5%. April’s UK growth data from the manufacturing, construction and services sector was disappointing. Retail sales figures were strong but the market was unconvinced, correctly putting the growth down to temporary factors such as good weather, the Easter Holidays and Royal Wedding tourism.
Accordingly, a spike in UK inflation (up to 4.5%) and some more hawkish statements from Bank of England Governor Mervyn King failed to have any lasting sterling-positive effect. Today’s poor UK manufacturing growth data for May suggests things are getting worse, not better, and the prospects for an improved second quarter GDP figure are looking shaky.
Whilst the market is somewhat less responsive to fundamental data from the eurozone, the economic picture in France and Germany is broadly positive. The most recent quarterly GDP figures for the two core states were 1.0% and 1.5% respectively (contrast this with a 0.5% figure for the UK).
Clearly it was not a matter of sterling strength that saw this pair climb last month, but euro weakness. Asian sovereigns, previously reliable for sweeping up euros on the cheap, went missing for extended periods. News came thick and fast from various peripheral nations and various rating agencies, but the situation seems to have calmed a little, or at least the market has grown a thicker skin. This has dragged GBP/EUR two cents off its highs of €1.16 over the past week.
The euro also weakened significantly thanks to a dovish ECB press conference, after the ECB announced that the eurozone base rate was to remain at 1.25% for the time being. Trichet disappointed the market by failing to include the phrase “strong vigilance” with regard to eurozone inflation, causing speculators to pare back expectations of the next ECB rate rise from June to July.
July still seems a very good bet; eurozone inflation stayed at 2.8% y/y in May and remains well above the central banks’ target. The prospect of this rate hike should keep the euro fairly well supported over June. However, although sentiment has improved towards the peripheral debt issue, the euro still remains very vulnerable to rumours and to a slowdown in progress. Support from the Far East is crucial, but with the dollar such an unappealing currency, they will be as eager as ever to diversify their funds.
Sterling/US dollar
The $1.70 mark was looking very realistic at the start of May but a surge in risk aversion in recent weeks brought this pair back down as low as $1.60. A slide in commodity prices and intense fears of a Greek debt restructure and resultant financial crisis saw the US dollar benefit from significant safe-haven inflows. However, the decline in commodity prices has consolidated and eurozone debt concerns have faded from focus somewhat in the past week or so.
US fundamental data has been very poor indeed of late. First quarter US GDP put growth on an annualised basis at 1.8%, retail sales and consumer sentiment data was weak and manufacturing growth has slowed down alarmingly. In addition, US government debt has come under close scrutiny in recent weeks, as the Democratic government faces a deadlock with the Republicans on how to reduce its enormous deficit.
Perhaps most importantly, we have seen no real improvement in the US labour market, which is the Fed’s main obstacle to raising the US interest rate from the record low of <0.25%. The Fed’s QEII programme is likely to be discontinued this month. However, a rate rise this year seems unlikely with inflation levels subdued and the US unemployment rate at 9.0%.
A BoE rate hike seems equally unlikely this year, but the GBP/USD rate is helped by gains in the EUR/USD rate. The dollar has failed to hang on to some major gains against the single currency, which took the EUR/USD rate from $1.49 to $1.40. The euro has enjoyed a mild revival to currently trade at $1.44, which as usual has pulled GBP/USD with it.
An ascent back up towards $1.70 may be a bridge too far for this pair in coming weeks, particularly with the UK economy in such poor shape. However, sterling may be able to add a few cents to its recent rebound, with sentiment so pessimistic towards the dollar and with the euro enjoying a resurgence.
Caxton FX one month forecast:
GBP / EUR 1.12
GBP / USD 1.65
EUR / USD 1.4750
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
The single currency has suffered from the most severe debt concerns seen in months. Rumours of a Greek euro-exit and a more general euro-collapse inevitably spooked investors. Greece looks set to remain in the euro and the dominant voices out of the negotiations insist that there will be no debt restructuring. An additional aid package in return for greater austerity measures and privatization seems likely to be the substance of a resolution at this stage, and this should arrive by the end of this month. Much uncertainty still remains, not least over whether the IMF will be providing Greece with its share of the next tranche of Greek bailout aid.
Despite a broad upturn in sentiment towards the Greek situation, the risks of debt contagion have become all too apparent in recent weeks. We have seen rumours of a Greek debt restructure trigger rating agencies to downgrade the economic outlook of other struggling nations such as Belgium and Italy. We have also seen the Spanish government suffer a crushing electoral defeat which places the country’s necessary austerity measures in doubt. Portugal did receive a bailout, but borrowing costs throughout the periphery have scaled new heights.
Safe-haven currencies have benefitted from the eurozone uncertainty. The US dollar therefore had a stronger month, but it remains a fundamentally unappealing currency (due to a downbeat economic outlook and ultra-loose monetary policy). Sterling has weakened against the dollar, but has reached healthier levels against the euro as investors were forced to look for alternatives.
Sterling/Euro
This pair made some decent gains over the month, climbing two cents to trade at €1.14. However, sentiment towards the UK economy has not improved. It may even have worsened since the disappointing first quarter growth figure of 0.5%. April’s UK growth data from the manufacturing, construction and services sector was disappointing. Retail sales figures were strong but the market was unconvinced, correctly putting the growth down to temporary factors such as good weather, the Easter Holidays and Royal Wedding tourism.
Accordingly, a spike in UK inflation (up to 4.5%) and some more hawkish statements from Bank of England Governor Mervyn King failed to have any lasting sterling-positive effect. Today’s poor UK manufacturing growth data for May suggests things are getting worse, not better, and the prospects for an improved second quarter GDP figure are looking shaky.
Whilst the market is somewhat less responsive to fundamental data from the eurozone, the economic picture in France and Germany is broadly positive. The most recent quarterly GDP figures for the two core states were 1.0% and 1.5% respectively (contrast this with a 0.5% figure for the UK).
Clearly it was not a matter of sterling strength that saw this pair climb last month, but euro weakness. Asian sovereigns, previously reliable for sweeping up euros on the cheap, went missing for extended periods. News came thick and fast from various peripheral nations and various rating agencies, but the situation seems to have calmed a little, or at least the market has grown a thicker skin. This has dragged GBP/EUR two cents off its highs of €1.16 over the past week.
The euro also weakened significantly thanks to a dovish ECB press conference, after the ECB announced that the eurozone base rate was to remain at 1.25% for the time being. Trichet disappointed the market by failing to include the phrase “strong vigilance” with regard to eurozone inflation, causing speculators to pare back expectations of the next ECB rate rise from June to July.
July still seems a very good bet; eurozone inflation stayed at 2.8% y/y in May and remains well above the central banks’ target. The prospect of this rate hike should keep the euro fairly well supported over June. However, although sentiment has improved towards the peripheral debt issue, the euro still remains very vulnerable to rumours and to a slowdown in progress. Support from the Far East is crucial, but with the dollar such an unappealing currency, they will be as eager as ever to diversify their funds.
Sterling/US dollar
The $1.70 mark was looking very realistic at the start of May but a surge in risk aversion in recent weeks brought this pair back down as low as $1.60. A slide in commodity prices and intense fears of a Greek debt restructure and resultant financial crisis saw the US dollar benefit from significant safe-haven inflows. However, the decline in commodity prices has consolidated and eurozone debt concerns have faded from focus somewhat in the past week or so.
US fundamental data has been very poor indeed of late. First quarter US GDP put growth on an annualised basis at 1.8%, retail sales and consumer sentiment data was weak and manufacturing growth has slowed down alarmingly. In addition, US government debt has come under close scrutiny in recent weeks, as the Democratic government faces a deadlock with the Republicans on how to reduce its enormous deficit.
Perhaps most importantly, we have seen no real improvement in the US labour market, which is the Fed’s main obstacle to raising the US interest rate from the record low of <0.25%. The Fed’s QEII programme is likely to be discontinued this month. However, a rate rise this year seems unlikely with inflation levels subdued and the US unemployment rate at 9.0%.
A BoE rate hike seems equally unlikely this year, but the GBP/USD rate is helped by gains in the EUR/USD rate. The dollar has failed to hang on to some major gains against the single currency, which took the EUR/USD rate from $1.49 to $1.40. The euro has enjoyed a mild revival to currently trade at $1.44, which as usual has pulled GBP/USD with it.
An ascent back up towards $1.70 may be a bridge too far for this pair in coming weeks, particularly with the UK economy in such poor shape. However, sterling may be able to add a few cents to its recent rebound, with sentiment so pessimistic towards the dollar and with the euro enjoying a resurgence.
Caxton FX one month forecast:
GBP / EUR 1.12
GBP / USD 1.65
EUR / USD 1.4750
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Wednesday 1 June 2011
Four straight months of diminishing growth for the UK’s ailing manufacturing sector
May was the fourth month in a row that growth in the UK manufacturing sector decreased. If manufacturing growth continues to slow, it won’t be long before we are in contraction.
Today’s PMI data showed the weakest monthly growth since December 2009. No one expected the data to be good, as forecasts were generally pessimistic - but the results are even more alarming for the UK’s economic outlook.
Sterling has taken a major hit in response - dropping by almost a cent against the US dollar, and by half a cent against the euro. All this does is place further doubts over the strength of the UK’s economic recovery, pushing back expectations of a long-awaited Bank of England rate rise. Some players bet on a rate rise at the end of this year, but as things stand we are likely to have to wait until the end of the first quarter of 2012.
With the rate of growth in the construction and services sectors expected to be flat this week, we may have to wait even longer for some positive data. Today’s data doesn’t bode well for UK growth in the second quarter - we are in dire need of an upside surprise from the services sector.
Today’s PMI data showed the weakest monthly growth since December 2009. No one expected the data to be good, as forecasts were generally pessimistic - but the results are even more alarming for the UK’s economic outlook.
Sterling has taken a major hit in response - dropping by almost a cent against the US dollar, and by half a cent against the euro. All this does is place further doubts over the strength of the UK’s economic recovery, pushing back expectations of a long-awaited Bank of England rate rise. Some players bet on a rate rise at the end of this year, but as things stand we are likely to have to wait until the end of the first quarter of 2012.
With the rate of growth in the construction and services sectors expected to be flat this week, we may have to wait even longer for some positive data. Today’s data doesn’t bode well for UK growth in the second quarter - we are in dire need of an upside surprise from the services sector.
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