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Introduction
The United Kingdom is the 5th largest economy in the world, with a GDP of $2.398 trillion, and a population of 60 million. The economy has experienced positive growth in every quarter since 1992, and the central bank in '06 - '07 hiked interest rates to 5.75% to stem an increase in inflation. London is the world's largest financial center, with the UK having £21bn of financial exports in 2005. Manufacturing accounts for 16% of national output and 13% of employment. UK property markets have been booming for the last seven years, but have recently shown signs of straining as interest rates climbed and financial markets were hit with a credit crunch in August '07.
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| United Kingdom's Fundamental Indicators and Chart |
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| Monthly Data for June, 2008 |
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| Date | EST | Indicator | Actual | Forecast | Previous |
| 6/10 | 4:30am | Industrial Production |
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| 6/10 | 4:30am | Manufacturing Production |
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| Central Bank Watch - Latest Bank of England Decision
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Actual | Forecast | Previous | Revised Form | |
| 5.00% | 5.00% | 5.00% | N/A | ||
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Provided by: Bank of England
The Bank of England kept its benchmark rate at 5%. The Monetary Policy Committee has moved to cut rates 3 times since December, reducing the rate a quarter-point in their last meeting. Though the economy is weakening, inflation pressures remain a concern for the central bank. Expectations are for another quarter-point reduction in the next meeting, as policy makers try to stem a sinking housing market, and slower services and manufacturing activity. Consumers are becoming more and more pessemistic about current conditions. One benefit to weakengin growth is the hope, by policy makers that inflation will cool as well. |
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Go to UK Interest Rate Fundamental Indicator Page
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| Economic and Financial Profile
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Credit Crunch Hits UK Economy:
The UK economy saw strong growth recently, and some inflation, prompting the central bank to raise rates from 4.5% to 5.75% from July of 2006 to July 2007. Unemployment is at record lows and the services sector is growing rapidly. The bank was projecting that growth would moderate nicely in 2008, letting the bank raise its rate again in early 2008. Then, on August 9th, the world's financial markets experienced a shortage of credit causing injection of funds into the system. The Bank of England did not intervene until Northern Rock, needed to be bailed out. Other economic news related to losses as a result of the credit crisis have turned the central bank dovish and in their Nov. 14th Inflation Report, it signaled that rates would come down to 5.25% next year.
With the onset of the credit crunch, the housing sector, which had been a strong vehicle of growth in the UK, has begun to wobble. Prices have been falling in several indicators, and higher costs for loans will shrink the potential buyers. Business investment may also take a hit. The UK economy is set to report 2% growth next year after a 3.5% measure projected for 2007.
Carry Trade:
The Pound is used as a destination for carry trade, as its higher yields attract investments which are funded though borrowing money in low interest rate currencies such as the Yen and Swiss Franc. When global stocks are doing well, traders buy the GBP/JPY, when global stocks fall, so does the GBP/JPY. The last two years saw a strong climb of about 52 yen, however Augusts' turmoil in financial markets sent the pair reeling. More recent financial news in November have prompted a second, or third (if you count early '07) round of Pound selling.
This figure is a weekly chart, of the GBP/JPY pair. Prices moving upward favor the strength of the Pound (the top currency in the GBP/JPY quote). When prices move down they favor the Yen
(the bottom currency in the pair).