Sterling falls on growth forecast and unemployment

Thursday 17th November 2011
Good morning. The Pound hit a 1 month low against the US Dollar yesterday after the Bank of England cut its growth and inflation forecasts indicating more QE is on the way. EU debt worries pushed investors towards the safety of the dollar compounding the drop in GBP/USD rates, while the weaker Euro kept GBP/EUR rates supported just below €1.17. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1681
• GBP/USD 1.5738
• GBP/AUD 1.5621
• GBP/NZD 2.0577
• GBP/CHF 1.4493
• GBP/CAD 1.6105
• GBP/ZAR 12.820
• GBP/JPY 121.06
• GBP/DKK 8.6931
• GBP/NOK 9.1129
• EUR/USD 1.3463

Bank of England cut growth forecasts for UK

The UK’s economic outlook has worsened and the economy could stagnate until the middle of 2012, the BoE said yesterday . Their quarterly inflation report showed Britain on the brink of contraction and forecast that inflation would eventually fall well below target. This suggests, as many expect, that it may add to its 275 billion pound asset purchase programme.

Further Quantitative Easing will flood the market with Sterling, and the prospect of this has weakened Sterling and pushed exchange rates lower against other currencies.

City analysts said that both lower growth and inflation forecasts showed the Bank would leave interest rates at the low level of 0.5% into 2013.

“The report both endorses market expectations that rates will stay on hold for the foreseeable future and suggests that more policy loosening will yet be needed,” said Vicky Redwood, chief UK economist at Capital Economics.

UK unemployment at 17 year high

UK unemployment rose significantly in the 3 months to September to close to 3 million, as youth unemployment rose above 1 million. The Office for National Statistics (ONS) said the jobless rate hit 8.3%.

The number of people out of work and claiming Jobseeker’s Allowance rose by 5,300 to 1.6 million in October. The news comes as the Bank of England’s governor Sir Mervyn King said Britain’s economy could stagnate until the middle of next year.

The poor figures have added to the view that the UK economy is stagnating, and this is being reflected in the lower value of Sterling. In fact, the only thing keeping the Pound supported to some extend is the fact that it’s not the Euro! Investors are wary of investing in the EU and this has created some demand for Sterling that is keeping rates higher than they would otherwise be.
Today’s Data

Today the UK releases Retail Sales figures. The US has various measures of jobless claims and unemployment.

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