STERLING / EURO
Range of the week: 1.1741 – 1.1860 (8th May – Current)
Variance of the week on £10k=€119
Variance of the week on £1,000pm=€11.90
In the UK politically we have been dominated over the last couple of weeks over whether or not we should look to leave, amend or keep our relationship with the EU. Starting with local elections where UKIP gained nearly 25% of the vote showing a very real concern from the public and in addition some senior cabinet ministers have said they would vote currently for the UK to leave the EU. The conservatives are saying, should they be elected, they will give the UK a referendum on membership with the EU in 2017. So although not an immediate issue for the UK, some experts have said any removal or reduction of our close ties to Europe will have a damaging effect on the UK economy and the value of the pound. So very much a “watch this space!” topic.
A data heavy week in Europe, and we start the day with growth figures coming out of the Euro-Zone.
The French economy has gone back into recession, its second in four years, after a contraction for the first quarter of 2013 at -0.2%. German figures, also published this morning, were disappointing at 0.1% growth against expectation of 0.3% and now shows the Euro-Zone powerhouse has shrunk by -1.4% over the last 12 months. The Germans were quick to downplay these figures by stating that “The German economy is only slowly picking up steam. The extreme winter weather played a role in this weak growth.” – Something we have seen used here in the UK to try and explain our own disappointing GDP figures. It seems if in doubt, blame the weather! And to complete the hat-rick we have seen Italy confirmed as being in its longest recession on record now having confirmed -0.5% for the first quarter.
As you would expect the Euro has weakened this morning, but has not suffered too significantly as the ECB had already cut rates this month to a record low of 0.5%, and in doing so acknowledging the need to try and stimulate some growth in the Euro-Zone. Some analysts are now expected to revise down their forecasts for growth in Europe with Barclays saying there was “significant downside risk” to it’s forecast of 1% growth for 2013. This was re-emphasised as Euro-Zone GDP as a whole came out at -0.2% for the last 3 months.
In the UK, unemployment figures were up to 2.52 million or 7.8% of the population so not good news either. This was however overshadowed by the Bank of England inflation report which is always keenly watched. The Sir Mervyn King said that the UK recovery is insight but that inflation will remain above target until 2016 (we’ve heard this a few times before). The BoE has said their growth targets will be hit again as the “big squeeze” goes on however sterling has risen on the back of the report.