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The building blocks to a sterling recovery start at home… Important Releases for October and the rest of the year
The Pound has continued it meagre performance of late with an unsurprisingly poor number on Construction this morning. The lack of Construction growth is going to be a major challenge for the GDP number and will undoubtedly continue to weigh on the performance of the pound.
Construction has been a big problem for the UK and the pound in recent years. The property booms in the 1990′s and the earlier part of 2000 contributed to and were a result of a growing GDP (Gross Domestic Product) number. People had more money and property prices went up. People made money on their properties and either bought another (pushing prices up further) or cashed in equity which went into more property or into the wider enconomy (pushing prices up further).
The major decline in property prices has had a negative impact on GDP and today’s figures confirmed that Construction looks set to be a drag again of Q3 GDP figures. Until the property market makes a solid recovery and the slack is taken up, builders won’t be building and GDP will remain subdued. The next round of GDP data incidentally is released on the 25th October and is key for anyone with an interest in buying or selling the pound in the coming weeks and months. The first estimate of the previous quarter’s growth is often an unknown and the Olympics, taking up a huge amount of peoples time and not necessarily their money could actually have been a drain on the economy. Retail Sales and many other indicators confirm all was not so rosy for the economy during those memorable weeks.
The same fear and uncertainty that is driving governments globally to ‘ease’ their way to an economic recovery, is the same fear and uncertainty that is preventing consumers and businesses from spending their hard earned cash.
This Thursday is the Bank of England rate decision and whilst no change is predicted, the Minutes of this week’s meeting which are due on 17th October could be much more telling as to what extent we can expect more QE is due in November. This is when the current round ends and so much monetary easing is taking place globally, there will probably be much pressure on the MPC (Monetary Policy Committee) to act.
The Bank of Japan last month announced more easing, the Federal Reserve in the US last month also launched a further round of stimulus, China embarked on further stimulus and the Reserve Bank of Australia cut rates again last night (weakening the Aussie). It would almost be rude not to look at more QE by the Bank of England! QE (Quantitative Easing) and Interest rate cuts serve to weaken a currency by reducing investor demand. In the current global economic climate ‘easing’ whether through rate cuts or QE is ever more popular. Understanding the relationship of economic policies to a currency’s performance is key to understanding exchange rate fluctuations. If you would like to learn more I will be happy to explain to you in more detail, please contact me directly on [email protected]. It really could save you money if you are considering an exchange. Particularly if planning something at a rate hugely different from current levels or way off in the future.
So to assess the outlook for the pound let us look at the facts. The Euro crisis is worsening, of that there is little doubt. Eurozone Unemployment is still rising and there is little sign of improvements in the economic outlook for the single currency anytime soon. China are clearly worried about a global slowdown as are Australia with yesterday’s rate cut and the prospect of a new potentially protectionist President following US elections could spell yet further woes for the global economy.
Recent reports of the UK economy getting back to growth in the near term and Q3 of this year are obviously welcome, but don’t forget we have been in recession for almost a year! And this was the year in which we have had the Olympics, heralded by some as the answer to all of our troubles. In my lifetime I have never seen such a great positive mood in the country, as created by such excellent sporting achievements and this is of course impossible to put a price on. People sat at home cheering on the magnificent Mo Farah however does not equal spending on the high street or by businesses. The same fear and uncertainty that is driving governments globally to ‘ease’ their way to an economic recovery, is the same fear and uncertainty that is preventing consumers and businesses from spending their hard earned cash.
Better UK data could well spell some good spikes over the course of the next three months but the underlying conditions remain bleak and as Mervyn King and the rest of the MPC will be undoubtedly making clear soon, further Quantitative Easing and yet more sterling weakness looks to be a dead cert.
Ultimately no one can say exactly what will happen on exchange rates which is why a bit of forward planning is essential.
For more information on getting the very best exchange rates plus a forecast unique to your particular requirements please feel free to make contact directly with me Jonathan on [email protected] or call 01494 787 478. I welcome any enquiries for new and old clients looking for assistance on their transfers. I look forward to hearing from you and hopefully enlightening you! Thank you.
2012-10-02 21:41:06
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