Stronger UK exports strengthen the GBP
The UK trade deficit produced a positive surprise in May due to stronger exports, in particular passenger cars. The trade shortfall in goods narrowed to £8.4bn from £9.1bn in the previous month as exports increased by 6.6% in volumes terms, mainly due to demand from non-EU countries. While this is undoubtedly good news for the UK, the outlook is less rosy as recent leading indicators of overseas demand have taken a turn for the worse. Further good news came with May’s UK industrial production which rose by 1.0%.
In a press interview yesterday BoE governor, Mervyn King, said the eurozone crisis had created “a great black cloud of uncertainty” over global business. He criticised eurozone leaders of failing to tackle the fundamental causes of the crisis. He admitted the BoE’s policy of quantitative easing had not restored prosperity yet, but it had prevented the UK from performing even worse.
The euro also lost ground against Sterling with GBP/EUR hitting a high of €1.2665 yesterday.
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