Nothing positive for GBP
I wouldn’t recommend anyone falls out with their boss or hands in their notice today, unless of course you have another job, as the UK jobs market remains gloomy. The UK unemployment release yesterday appeared positive at first glance with those claiming unemployment benefits falling by 10,200, but remember this figure is open to a little ‘massaging’ as those on government training courses for example – who are still essentially unemployed – are not counted. A more reliable indicator is the internationally recognised ILO unemployment figure and this showed an increase from 7.9% to 8.0%. As stated previously, the UK economy is simply not growing quickly enough to reduce unemployment and with the OECD announcing yesterday that it had reduced the UK’s 2011 growth forecast to 1.5%, the Chancellor’s forthcoming “Budget for Growth” can’t come quickly enough.
In other major releases yesterday and our European friends announced their CPI inflation figures. Interestingly, it showed that euro zone inflation had increased to 2.4% and although this was expected, it remains above the ECB’s ‘below but close to 2%’ target. Now, compared to the UK’s 4% inflation rate, 2.4% appears pretty insignificant, especially when the Bank of England still haven’t increased rates to try and control our inflation levels. The difference however is that the ECB has taking a tougher line on inflation and if ECB president Jean Claude Trichet statement at the last ECB meeting is anything to go by it is highly likely that EU rates will be increased soon.
As many of you will have noticed the euro has strengthened against the pound and the dollar in recent weeks and Trichet’s statement has supported this move. In addition, the agreements achieved at last Friday’s EU summit were well received by the currency markets. However, don’t think the EU sovereign debt problems have been extinguished, with the Portuguese government still paying more than 7% interest on its debt – a level their government has described as ‘unsustainable’ – this still looks to have further to run.
For now though the euro remains strong with one pound only buying you 1.1505 Euros – so those going to Spain for their summer holidays may find it a little more expensive. As for the pound against the dollar, after briefly testing the 1.6000 level it has made back some ground and is currently trading at 1.6154 with the US dollar falling on reduced “safe haven” support.