United Kingdom Country Profile - Economy, Currency, Central Bank, Canadian Dollar, CAD

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

Monthly Data for August, 2008

Date	EST	Indicator	Actual	Forecast	Previous
8/1	4:30am	Manufacturing PMI	44.3	45.5	45.8
		For July Provided by Chartered Institute of Purchasing and Supply (subcr. req') Input Prices: 82.4, pr. 82.1 (June), 62 (May), 61.9 (Apr) Prices for Goods: 63.1, pr. 62.6 The UK manufacturing sector contracts for a second straight month, with the PMI falling to 44.3 in July. The figure is the lowest since December 1998, but prices charged by factories rose at the fastest pace since at least 1999. The UK economy is facing a housing recession, consumer confidence is plunging and inflation remains high worrying the central bank enough for some policy members to call for higher interest rates. Company earnings are being affected by the slowdown in growth in the UK and around the world. The Pound weakened overnight as the news coincided with a slide in stocks and investor confidence.
8/4	4:30am	Construction PMI	36.7	37.6	38.8
		For July Provided by: Chartered Institute of Purchasing and Supply (CIPS) (sub. req'd) In the UK, the construction PMI came in at an 11-year low of 36.7 in July. The housing sector there has ground to a halt impacting the rest of the economy. EUR/GBP - Euro Jumpes on Pound to Start the Week: The Euro-Pound pair jumped in overnight trading and in the NY session as higher inflation will put the pressure on the ECB, while weaker growth in the UK has put the Bank of England on the defensive recently.
8/5	4:30am	Manufacturing Production	-0.5%	0.1%	-0.5%
		For June Provided by: Office of National Statistics (ONS) Current Release: (HTML) Man. Production y/y: -1.3%, forecast -0.6%, pr. -0.8%, 0.1% (Apr), 0.5% (Mar) Manufacturing output continued to contract in June, disappointing forecasts of a slight recovery. Decreases were widespread. Domestic demand is thinning as reflected by the record proportion of manufacturered products going to exports. Thus without demand from overseas, production would be declined even further. The British economy is heading into a receission and manufacturers are facing higher costs in the face of declining demand. This adds pressure to the Bank of England to decreases rates although policy members have to deal with inflation at the moment.
8/5	4:30am	Industrial Production m/m	-0.2%	0.1%	-0.8%
		For June Provided by: Office of National Statistics (ONS) Ind. Production y/y: -1.6%, forecast -1.2%, pr. -1.6%, 0.2% (Apr), 0.1% (Mar) As manufacturing outputs declined, so did the overall industrial production level. Energy supply output did provide an increase of 2.2%, while mining and quarrying output increased by 0.7%. GBP/USD - Pound Falls to 7 Week Low vs Dollar Prior to FOMC Statement: The Pound-Dollar was pressured by its fundamental data and Dollar strength prior to the FOMC meeting. The pair fell 80 pips in favor of the greenback, breaking support at 1.96. This put it at a new 7-week low.
8/5	4:30am	Services PMI	47.4	46.6	47.1
		For July Provided by: Chartered Institute of Purchasing and Supply (sub'n req'd) An index of activity in the services sector, which surveys about 700 firms, stayed below the 50 level, marking another month of contraction. The headline number improved slightly from last month, which means the fall in activity was not as acute as in June, but the data is nothing to get excited over. The Pound fell below 1.96 versus the Dollar overnight, as industrial production data disappointed. That's the lowest level in nearly 7 weeks. The Bank of England Monetary Policy Committee will meet on Thursday and look at reports showing weak services, manufacturing, housing, construction, and anemic financial lending. There does not seem to be light at the end of the tunnel either at this point, and the one thing that can come out of this period of slowdown is if inflation cooled. It's interesting to see how long the policy members will let economic growth suffer in order to meet their inflation targets. GBP/USD - Pound Falls to 7 Week Low vs Dollar Prior to FOMC Statement: The Pound-Dollar was pressured by its fundamental data and Dollar strength prior to the FOMC meeting. The pair fell 80 pips in favor of the greenback, breaking support at 1.96. This put it at a new 7-week low.
8/5	7:01pm	Consumer Confidence Index (NCCI)	51	57	62 61
		For July (not seasonally-adjusted) Provided by: Nationwide Official Release: PDF Current Conditions: 47, pr. 56 (Jun), 60 (May), pr. 65 (Apr), 74 (Mar) Expectations Index: 55, pr. 64 (Jun), 75 (May), pr. 74 (Apr), 79 (Mar) Spending Index: 54, pr. 63 (Jun), 60 (May), pr. 65 (Apr), 67 (Mar) From the Release: "The Nationwide Consumer Confidence Index fell by 11 points to 51 in July. Overall consumer confidence is 18% lower than this time last month and 46% lower than a year ago. These are the largest recorded falls in the index so far. More gloomy economic data, further falls in house prices, news of job losses and yet more increases in the cost of living on the horizon are likely to have contributed to the substantial drop in confidence this month. The Present Situation Index, which measures views about the current economic and employment situation, and the Expectations Index, which reflects sentiment about the economy, labour market and household income over the next six months, fell by 18% and 15% respectively. The Spending Index, which reflects views about spending on household goods and major purchases, also dropped by 11% in the month bringing the index level to 54. Fionnuala Earley, Nationwide’s chief economist, said: “The continuing downward trend in consumer confidence is not surprising given the recent batch of poor economic data. Talk of the increasing chances of a recession, more weakening in the housing market and the continuing rise of food and energy costs will have further dented confidence as will reports of job losses. Falling oil prices and lower fixed mortgage rates offer some good news, but a cut in the bank base rate is still unlikely this summer.”
8/5	7:01pm	NIESR GDP Estimate	0.1%		0.2%
		For July
8/6	5:30am	BRC Shop Price Index y/y	3.2%		2.5%
		For July Provided by the British Retail Consortium BRC Shop Price Index m/m 0.1% From the release: Year-on-Year: The BRC-Nielsen Shop Price Index (SPI) for the UK reports annual shop price inflation of 3.2% in July. This has increased from 2.5% reported in June. Overall inflation can mostly be attributed to food, with ambient and fresh categories increasing by 7.4% and 10.8%, respectively. Month-on-Month: On a month-on-month basis shop prices increased by 0.1%. While non-food prices fell by 0.8%, food prices rose 1.9%. Food prices has been the other big inflation driver. Overall food prices are up 9.5% on the year in July, up from the 7.0% in June. In the same period, the non-food component only edged up 0.1% in July and 0.2% in June. Looking at July alone, food prices jumped 1.9%, and non-food prices declined 0.8%, bringing the total price level up 0.1%. The BoE would have loved more manageable numbers, but the grim reality is an unreinable inflation and a recession bound economy.
8/7	4:00am	House Prices m/m (Halifax Bank of Scotland)	-1.7%	-1.5%	-1.9% -2.0%
		For July Provided by: Halifax Bank Of Scotland Official Release: PDF House Prices y/y: -8.8%, forecast -8.6%, pr. -6.1%, -3.8% (May), -0.9% (Apr) Avg. Price (s.a.): £177,351, pr. £180,344, £184,111 Housing prices in the UK, as measures by the HBOS, decreased 1.7% in July, and are down 8.8% compared to last year. That the worst result in a quarter century and the deterioration in prices have been swift since April when prices were only down about 1%. UK banks have cut bank lending to extremely low levels while the economy continues to weaken. To attract the shrinking pool of potential home buyers, home sellers are cutting prices. From the Release: ""House prices fell by 1.7% in July. Pressure on householders' income, together with a very significant reduction in mortgage finance due to the global financial markets crisis, is constraining potential house buyers' ability to enter the market. This is resulting in both lower prices and activity levels. A solid labour market, low interest rates and a shortage of new houses continue to support the market. The labour market is the key driver of the housing market and the number of people in employment is at a record high."
8/7	7:00am	BOE Interest Rate Statement	5.00%	5.00%	5.00%
		Provided by: Bank of England Previous Announcement: News Release The Bank of England held rates steady at 5%. The Monetary Policy Committee finds the UK economy stuck between weakening growth and escalating inflation, which pits interest rate hawks and doves against each other. Manufacturing, services, and construction surveys showed activity declining in July, while inflation is running almost double the 2% annual target. Last month the MPC split 3 ways, with one member each voting for a rate cut and rate hike, and the rest holding. There may be a similar breakdown this month, though the UK economy seemed to be showing a much harsher reaction to the fallout of the credit crunch than perhaps the Euro-zone. The Pound had been climbing prior to the release, but gave up all of its overnight gains as the NY session began. It was the opposite case against the Euro where the Pound cut its overnight losses to the Euro, which had been stronger prior to the 2 interest rate decisions.
8/11	4:30am	Producer Price Index Input	-0.6%	1.0%	2.1%
		For July (s.a) Provided by: Office of National Statistics PPI Input y/y: 30.1%, forecast 29.8%, pr. 30.8%(r+) (Jun), 28.7% (May) PPI Output y/y: 10.2%, forecast 10.3%, pr. 10.0% (Jun), 9.3%(Apr) Output prices rose 0.4% on the month, reflecting a rise in petro and chemical products. Core output prices rose 6.7% on the year, and 0.3% on the month. Although there was an easing of input prices in July, the annual pace of 30.1% is the highest on record. Core input prices rose 16.6% on the year and 0.4% on the month.
8/11	4:30am	Producer Price Index Output	0.4%	0.5%	0.9%
		For July (non-seasonally-adjusted) Provided by Office of National Statistics (ONS) Official Release: PDF PPI Output y/y: 10.2%, forecast 10.3%, pr. 10.0% (Jun), 9.3%(Apr) See "Producer Price Index Input" for more detail
8/11	4:30am	Trade Balance	-7.7B	-7.4B	-7.4B -7.5B
		Visible Trade Balance for June Latest Release Provided by: National Statistics Office May's Release: PDF Total Trade Bal.: -£4.41B, forecast -£4.2B, pr. -£4.25B (May), -£4.3B, -£4.03B The UK trade deficit widened to £7.7 billion in June, larger than forecasts. Imports increased by £1.2 billion outpacing a rise in exports of £0.9 billion. The deficit with non-EU countries grew to £4.7 billion from £4.0 billion in May. The deficit with EU countries diminished, falling to £2.9 billion from £3.4 billion.
8/11	7:01pm	BRC Retail Sales y/y	-0.9%		-0.4%
		For July Provided by: British Retail Consortium (BRC) Official Release: Press Release From the Release: "UK retail sales values fell 0.9% on a like-for-like basis, compared with July 2007, when they had risen only 1.2%, hit by very wet weather. Sales have now been lower than a year ago in four of the past five months, the worst since summer 2005. Changeable weather hit sales in July. A few sunny days together with extended clearance events helped some but underlying trade remained tough, with widespread discounting. Food and drink was the only sector to show significant growth but that was against a weak July 2007. Clothing and footwear fell further below the year-earlier level. Furniture and homewares remained well down on a year ago, despite continued discounts and promotions. Consumer confidence has weakened still further to new record lows. With increasing demands on household budgets, shoppers are very price-conscious and reluctant to spend on big-ticket items. Even heavy discounting often failed to tempt customers to buy."
8/11	7:01pm	RICS House Price Balance	-83.9%	-90.0%	-86.9% -88.0%
		For July Provided by: Royal Institute of Chartered Surveyors (RICS) Official Release: Press Release Official Release: PDF From the Release: "The average number of transactions per surveyor fell further in July as a lack of mortgage finance continued to weigh heavily on the market. However, sales expectations have improved, driven by sellers beginning to offer more realistic asking prices. The RICS house price balance improved slightly for the third consecutive month but still remains at a significantly low level. 83.9 percent more Chartered Surveyors reported a fall than a rise in house prices, a decrease from 86.9 percent in June. The inability of many to secure mortgage finance is reflected in the collapse in transactions. The average number of transactions per surveyor (over the last three months) is now at 14.4, the lowest figure since the survey began and the net balance of newly agreed sales remains in negative territory. Demand remains weak with the balance of surveyors reporting new buyer enquiries still at a low ebb. Last month, new buyer enquiries improved again with 27 percent more Chartered Surveyors reporting a fall than a rise compared to 35 percent in June and 50 percent in May. In June, surveyors reported that ‘predatory buyers’ were bargain hunting for property. This month, surveyors report that ‘realism’ has returned to the market with many sellers dropping asking prices to more realistic levels."
8/12	4:30am	Consumer Price Index y/y	4.4%	4.2%	3.8%
		For July Provided by: Office of National Statistics Core CPI y/y: 1.9%, forecast 1.7%, pr. 1.6% (Jun), 1.5% (May), 1.4% (Apr) CPI m/m: 0.0%, forecast -0.2%, pr. 0.7% (Jun), 0.6% (May), 0.8% (Apr) UK consumer inflation jumped to an annual rate of 4.4% for the July period, overshooting forecasts. Prices were up 3.8% in June. On the month prices remained flat, compared to June's 0.7%, but this was also larger than the -0.2% expected. It's the highest since comparable records began in 1997, and is the 3rd month that prices are above the 3% upper limit (3.3% in May, 3.0% in April) that the Bank of England sets. Other data today showed house prices falling and retail sales declining as the UK economy teeters near a recession. Just as growth is stalling prices remain highly elevated as a result of oil and food prices. Oil prices did easy to end July and to start August, so that may have an effect on next month's number. The Bank of England, with rates at 5% is unable to hike, but at the same time doesn't want to cut rates to stimulate growth for fear of further recessionary pressure. Like a deer caught in headlights, the BOE will wait and see. From the Release: "Consumer Prices Index (CPI) annual inflation – the Government’s target measure – was 4.4 per cent in July, up from 3.8 per cent in June. The largest upward pressure came from food and non-alcoholic beverages where prices rose this year but fell a year ago. Within this division, there were large upward effects from meat, bread and cereals, and vegetables. There were further large upward pressures from: • transport costs, mainly due to the price of fuels and air transport. The average price of petrol increased by 1.2 pence per litre between June and July this year, to stand at 118.8 pence, compared with a fall of 0.4 pence last year. The other large upward effect came from passenger air transport where fares rose by more than last year particularly on European routes."
8/12	4:30am	Retail Price Index y/y	5.0%	4.9%	4.6%
		For July Provided by: Office of National Statistics RPI m/m: -0.1%, forecast -0.3%, pr. 0.8% (Jun), 0.5% (May), 0.9% (Apr) Retail pricces, just like the CPI, surprised on the upside, hitting 5% on an year-over-year basis for July. See "Consumer Price Index y/y" for more commentary. From the Release: "Retail Prices Index (RPI) inflation rose to 5.0 per cent in July, up from 4.6 per cent in June. The main factors affecting the CPI also affected the RPI. Additionally, there was a large downward contribution from housing with the main effect coming from house depreciation. Depreciation is excluded from the CPI."
8/12	4:30am	DCLG House Price Index y/y	0.6%	1.5%	3.0% 3.7%
		For June Provided by: Communities and Local Government Official Release: Press Release Official Release: PDF The Department for Communities and Local Government said today its housing price index (HPI) showed prices 0.6% higher compared to June 2007. Thats a drop off from May's downwardly revised 3.0%. Last week, the HBOS HPI for July, saw prices fall the most in almost a quarter century (8.8%) on an annual basis. The DCLG indicator is not as closely followed as the HBOS, but it is also showing a clear deterioration in housing prices in its survey. From the Release: "The UK average house price grew by 0.6 per cent in the year to June 2008, down from 3.0 per cent in the year to May 2008. Between May and June there was a fall of 0.7 per cent in the prices index of properties bought compared with a rise of 1.6 per cent over the same period last year, resulting in a decrease in the annual rate. UK house prices were 0.6 per cent higher than in June 2007. The mix-adjusted average house price in the UK stood at £215,029 in June 2008 (not seasonally adjusted). UK house prices fell by 1.1 per cent in the quarter ending June 2008. This compares with a fall of 0.1 per cent for the quarter ending March 2008. By country annual house price growth was highest in Scotland (+5.7 per cent) and lowest in Northern Ireland (-9.4 per cent). Annual house prices fell by 1.0 per cent in Wales, and rose by 0.5 per cent in England. House price figures for April and May 2008 have been revised from those published last month due to the receipt of new data from lenders who provide information quarterly rather than monthly."
8/13	4:30am	Claimant Count Change	20.1K	17.5K	20.0K 15.5K
		For July Provided by: Office of National Statistics Claimant Un. Rate: 2.7%, forecast 2.6%, pr. 2.6% (Jun) , 2.6% (May) July's claimant count increased by highest level since the 71.4K in December 1992 and now totals 864,700, up 10,900 on the year. This is the sixth straight month of increase in unemployment claims and comes on the heel of an upwardly revised 20.0K in June. The claimant count unemployment rate also unexpected edged up to 2.7%, reflecting a wobbly labor market.
8/13	4:30am	Unemployment Rate	5.4%	5.3%	5.2%
		For 3 months through June ILO Unemployment Rate Provided by: Office of National Statistics The National Statistics' unemployment rate swelled to 5.4% for the 3 months to June and underscores the alarming softening of the labor market, which will force the BoE to refocus the issues leading their policy discussions. From the release: The unemployment rate was 5.4 per cent for the three months to June 2008, up 0.2 over the previous quarter but unchanged over the year. The number of unemployed people increased by 60,000 over the quarter and by 15,000 over the year, to reach 1.67 million.
8/13	4:30am	Average Earnings Index and Bonus q/y	3.4%	3.6%	3.8%
		For 3 months to June Provided by: Office of National Statistics Earnings Ex. Bonus (q/y): 3.7%, forecast 3.7%, pr. 3.8% Wage growth was a moderate 3.4% in the June quarter compared to 2007 Q2, and undershot estimates of a lesser decline to 3.6%. It is expected that the increased costs to producers will eventually have to be passed on to consumers in the form of higher prices, lower wages, and soft employment, which in turn will weaken consumption and put a drag on inflation. However, the bank feared that inflation expectations might be embedded in wage price-setting. There has not been any evidence of that and the BoE has another reason to focus more on economic growth then supressing inflation.
8/13	5:30am	BOE Quarterly Inflation Report
		Provided by: Bank of England Current Release: Summary Previous Release: PDF The BoE's August Quarterly Inflation Report highlighted the bank's expectation that the easing of demand will bring inflation back to below target level in the medium term. A contraction of the economy was apparent for the second quarter. While the bank is uncertain of the extent of the slowdown, it seesthe possibility of a more pronounced contraction going over the next year. It hopes that the spare capacity and reduced demand will drag inflation back below the target of 2% annual pace. There are concerns that a prolonged period of heightened inflation expectation may feed into price and wage settings. Until inflation shows a marked deceleration, the bank will be pressured to allow a slowdown to pursue as it may help to bring down prices. The Bank of England is now taking the stance that the RBA have been taking. It sees no prospect of increasing rates in order to battle inflation. The key remains in the volatile items of food and energy, which has shown some peaking. As harvest season comes, a record high level of corn and soy will be on the market and will lift some inflation pressure as well. Although the current stance of the BoE suggests inflation is the focus, a rate cut prospect is creeping in as conditions will become more fitting towards the year's end. The Sterling has sliding accordingly. From the release: At its August meeting, the Committee noted that the immediate prospect was for CPI inflation to move substantially further above the 2% target, and for output to be broadly flat. The weakness of economic activity would open up a margin of spare capacity, which was likely to be necessary in order to return inflation to the target in the medium term and to ensure that longer-term inflation expectations remained close to the target. There were significant risks to the inflation outlook relating to the extent of the slowdown and to the persistence of the pickup in inflation. In the light of those risks, the Committee judged that maintaining Bank Rate at 5% at its August meeting was appropriate in order to meet the 2% target for CPI inflation over the medium term.
8/17	7:01pm	Rightmove House Price Index	-2.3%		-1.8%
		Monthly Change for August Provided by: Rightmove Official Release: PDF Rightmove HPI y/y: -4.8%, pr. -2.0% (Jul), 0.1% (June), 2.2% (May) Avg. Price: £229,816 pr. £235,219 (Jul), £239,564 (Jun), £242,500 (May) Housing prices in the UK continue to sink with the monthly change for August showing a 2.3% decline compared to June. The pace of declines is increasing as price fell 1.8% in June and 1.2% in May. For the year, housing prices are now down 4.8%, which is the biggest drop since the survey began in 2002. The story remains the same. Banks continue to choke off mortgage lending shrinking the pool of potential home buyers. The housing standstill has rippled out to the rest of the economy, and now retail sales and GDP are suffering as other sectors in the economy falter. From the Release: "The re-adjustment in national average asking prices is gathering pace. New sellers putting their properties onto the market in July did so at prices 2.3% (£5,403) lower than last month as they continue to fight Brickor Mortis, the paralysing condition that is hitting property transactions nationwide. This is a further acceleration from the drops of 1.8% and 1.2% in the preceding months and is the largest fall Rightmove has ever measured in August. The biggest regional reversal was in London, where summer sellers have reduced asking prices by 5.3% compared to the increase of 0.3% of the previous month."
8/20	4:30am	BOE Meeting Minutes	7-2 hld	7-2 hld	7-2 hld
		Minutes for meeting held on 6 & 7 Aug Provided by: Bank of England Official Release: PDF The BoE minutes showed that 7 members of the MPC voted for an maintaining the bank rate, 1 for a rate hike, and 1 for a rate cut. The minutes showed increasing uncertainty about the situation of inflation, though the on balance there are still upside risks. Although oil prices declined, utility prices have surged and may reverse the downside effects of oil on inflation. The main concern of inflation is in its potential effects on wage price setters. At this point, the bank has the finger on the trigger to pull for a rate cut, only to be deterred by persistent inflation. The question is how much spare capacity is needed to effect prices. A move in any direction when data is creating more uncertainty would be like throwing dice with the stakes increasing. The bank feels that the rate cut needs to follow some stabilization of prices because it would be doubly difficult to raise rates back up if inflation continues. From the Release: "Most members of the Committee judged that the current stance of monetary policy was broadly appropriate and that Bank Rate should be maintained at 5% this month. Inflation was likely to move further above the target in the coming months. The outlook for activity growth had continued to worsen, but some build up in the margin of spare capacity was likely to be necessary to ensure that inflation returned to the target in the medium term. For one member of the Committee, the risk of inflation being more persistent than in the central projection was sufficient to warrant an immediate increase in Bank Rate. Although there were considerable downside risks to growth, particularly those arising from the tightening of credit conditions, a pre-emptive increase in Bank Rate would help to keep inflation expectations anchored to the target and lessen the need for more restrictive policy in the future. For another member, the downside risks to activity growth were greater than the majority view expressed in the Inflation Report. For this member, there was less risk of inflation being persistent and more risk of undershooting the inflation target in the medium term, because of rapidly slowing activity, so an immediate cut in Bank Rate was warranted."
8/20	4:30am	M4 Money Supply	0.9%	0.5%	1.8% 2.0%
		For June M4 y/y: 11.2%, forecast 10.7%, pr. 11.5%, 10.0%
8/20	4:30am	CBI Industrial Trends Orders	-13	-12	-8
		For August Provided by: Confederation of British Industry Official Release: News Release The combination of needing to raise prices in an environment of shrinking demand causes major headaches to manufacturers, whose outlooks for the next three months are the lowest since December 2001. The sluggish Euro-zone economy also making it tough for UK exports, although the declining pound has helped make British goods more competitive. From the Release: "Manufacturers' output expectations for the next three months are the weakest for seven years, the latest CBI Industrial Trends Survey reveals today (Wednesday). At the same time, the balance of firms expecting the price of manufactured goods to rise has barely changed since last month's 18-year high. The outlook for manufacturing output has continued to deteriorate in August, following the first negative expectation since December 2005 in July. While 20% of firms in this month's survey expect their volume of output will increase in the coming quarter, 33% expect it will fall. The resulting balance of -13% is the weakest since December 2001 (-28%). Demand for manufactured goods weakened for a second month after signs of improvement earlier in the summer. A net 13% of manufacturers judged total order book levels to be ‘below normal', matching April's 18-month low figure. Firms' perception of export orders was less negative, indicating that external demand is holding up somewhat better, though this month's balance of -9% is the lowest since May (-12%)."
8/21	4:30am	Retail Sales m/m	0.8%	-0.3%	-4.3% -3.9%
		For July Provided by: National Statistics Office Retail Sales y/y: 2.1%, forecast 1.8%, pr. 2.2% (Jun), 8.1% (May), 4.2% (Apr) UK retail sales surprised forecasts and increased in July, climbing 0.8%. On the year, sales registered a 2.1% increase, a slower pace than in June, but better than forecasts. The positive result may be short lived as the pressures facing consumer spending remain. The housing market continues to stall, and high inflation eats into consumer's purchasing power. The rest of the year should see further weaker growth in sales. Last month's -4.3% change was the biggest drop since 1986. From the Release: "Between July and June, total sales volume increased by 0.8 per cent. Sales volume in predominantly food stores rose by 0.3 per cent. Sales volume for predominantly non-food stores increased by 1.3 per cent. Sales volume for the non-store retailing and repair sector fell by 0.1 per cent. Sales in non-specialised stores fell by 2.6 per cent."
8/21	4:30am	Business Investment q/q	-1.9%	-0.7%	-1.8%
		Preliminary Version for 2nd Quarter. Provided by: Office for National Statistics Business Investment y/y: 1.9%, forecast 3.1%, pr. 4.5% (1Q), 3.7% Business investment fell 1.9% in the 2nd quarter compared with the first, sharper than the 0.7% fall expected by economists. With businesses facing some of the stiffer costs of raw material costs and higher energy, they are scaling back their spending on heavy equipment and other investment. Sales are expected to cool as the economy is in the midst of a serious correction. The worse than expected result here will most likely have an impact on the GDP for the 2nd quarter which will most likely have to be revised down from its initial estimate.
8/22	4:30am	Gross Domestic Product q/q	0.0%	0.1%	0.2%
		Revised Version of 2nd Quarter Provided by: Office of National Statistics GDP y/y: 1.4%, forecast 1.5%, prelim. 1.6%, pr. 2.3% (1Q), 2.8% (4Q '07) Economic growth in the UK for the second quarter was weaker than first estimated. The revised version of GDP came in at a flat 0%, compared to the preliminary estimate of 0.2%. That ends the longest stretch of economic growth in more than a century. Growth was 1.4% from a year earlier, the weakest since 1992. Business investment fell 5.3%, the most in 23 years. Household spending was down 0.1%, the first slide in that category since 2005. Industrial production contracted while services grew at a very slow pace. The weaker-than-expected result caused the Pound to plunge against the Dollar, declining a full 1%, or close to 200 pips in the hours following the release. The Bank of England may now have to put aside concerns over inflation and move to help bolster the economy.
8/22	4:30am	Index of Services 3m/3m	0.2%	0.4%	0.4%
		Through June Provided by: Office of National Statistics
8/26	4:30am	Mortgage Approvals (BBA)	22.4K		22.4K 21.1K
		For July Provided by: British Bankers Association Official Release: PDF Mortgage Lending: £4.3B, pr. £4.3B The number of house purchase approvals leveled off in July after declining about 65% over the last year. David Dooks, Economic Director of BBA is not impressed however as he believes this would be too premature to be sign of a bottom for the housing market. From the release: "The pressures on household budgets are reflected in the relatively weak rise in individuals' deposits and, with consumer borrowing growing only slowly it seems that consumers are acting prudently."
8/28	2:00am	Nationwide House Prices m/m	-1.9%	-1.3%	-1.5% -1.7%
		For August Provided by: Nationwide House Prices Official Release: PDF House Prices y/y: -10.5%, forecast -9.6%, pr. -8.1% (Jul), -6.3% (Jun) Avg. Price: £164,654 pr. £169,316 (Jul), £172,415 (Jun), £173,583 (May) Housing prices in the UK took another tumble, dropping 1.9% in the month of August, and has now hit a double-digit annual decline of 10.5%. Conditions are very subdued as interest in purchasing homes is far off the levels seen last year around this time. The Pound set an intra-day low vs the Euro and Yen around the time of the release, and overnight traded pretty flat against the Dollar. From the Release: “The price of a typical house fell by 1.9% in August, bringing the annual fall into double digits for the first time since the fourth quarter of 1990. The price of a typical house fell by 10.5% over the last twelve months to £164,654. While the pace of monthly falls picked up during the month, the less volatile three month on three month measure, eased very slightly in August to 4.5% from 4.6% in July. “Recent activity levels in the housing market have been very subdued. House builders in particular have been reporting significant reductions in site visits and reservations of new properties since this time last year, in spite of a big increase in the use of sales incentives. Reservations of new property began to feel the squeeze before any slowdown was recorded in the official number of house purchase approvals, but the two series have moved closely over recent months. House builders report that a lack of confidence in the market is the biggest reason behind the drop off in demand, although changes in lending criteria are also reported as an issue."
8/28	6:00am	CBI Distributive Trades Survey	-46	-32	-36
		For August Provided by: Confederation of British Industry Official Release: News Release A UK measure of retail sales fell to show a net balance of 46% of respondents answering sales were lower in the first half of August compared to a year ago. 38% of respondents believe the retail business will be worse off over the next three months, which damped investment intentions. The UK economy is facing pressures from every area. Housing continues to show anemic growth, consumer are pressured by higher prices for food and gas, and rising costs of living. With consumer confidence at very low levels, spending has decreased. As we outlined in Wednesday's Market Highlights, the Pound has been sliding sharply in August as traders price in rate cuts from the Bank of England. From the Release: "A wet August and disappointing summer sales have compounded the deepening problems on the High Street, where sales have continued to fall sharply and jobs have been hit. It was the second month of sharp falls in sales volumes and, with a similar drop expected in September, business confidence is very weak. Growth in average selling prices has eased back from a 16 year high, but remains strong. Sixty per cent of respondents to the latest CBI Distributive Trades Survey said that sales in the first half of August were lower than a year ago, while 13% said they were up. The resulting rounded balance of -46% was worse than anticipated (-32%) and the weakest since the survey began in 1983 - although changes in answering practices over the past 25 years diminish this comparison"
8/28	7:01pm	Consumer Confidence Index (GfK)	-36	-41	-39
		For August Provided by: GfK Group Official Release: Press Release From the Release: "The GfK NOP Index has shown a small improvement, rising three points to -36, but still 32 points lower than August last year. Consumer’s perception of their personal financial situation has improved for both the last and the next twelve months. Confidence in the UK economy over the next 12 months also showed a small improvement." Rachael Joy in the Consumer Confidence team at GfK NOP commented: "We have seen a small improvement in Consumer Confidence in August, but this should not be seen as a turnaround in core sentiment. This improvement could be down to a number of recent factors, which are mostly of short-term influence, such as cheaper petrol offers, summer holidays happening or just a general feeling of "things can't get any worse can they?". In particular, winning gold medals in the Olympics seems to have had a lifting effect. When we looked at the Index score before and after the Olympic weekend, the score rose 3 points between the first and second weekend. This, combined with summer holiday euphoria, may have helped lift consumers' perceptions of their personal situation and the general economy."

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Central Bank Watch - Latest Bank of England Decision

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September
4th, 2008

Actual

Forecast

Revised Form

5.00%

N/A

Provided by: Bank of England
Official Release: PDF

The bank of England kept rates steady at 5% after concluding their meeting today. Despite all kinds of signs of an economy reeling in 2008, the Bank is on guard against high inflation, which has not come down to a sufficient level for the bank to act with any kind of loosening of monetary policy. The Government acted to try and stimulate the housing sector by suspending a tax on some home purchases and pledged to accelerate 1 billion pounds of spending. Still GDP remains stagnant, and the central bank predicts will grow about 0.2% on an annualized basses in the first quarter of 2008.

The GBP/USD was up for the day, and held its advantage following the relase. It trades above 1.78 in early NY trading.

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Central Bank Watch - Bank Officals' Comments

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November 29 (BOE Governor King) -- Bank of England Governor Mervyn King said today the central bank will offer financial institutions emergency funds to prevent a renewed increase in money-market interest rates from hurting economic growth.

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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).