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

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Country and Central Bank Watch

United Kingdom

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 January, 2010

Date	EST	Indicator	Actual	Forecast	Previous
1/1	2:00am	Holiday: Bank Holiday
1/4	4:30am	Manufacturing PMI	54.1	52.1	51.8
		For December Provided by: Chartered Institute of Purchasing and Supply (CIPS) (subcr. req') (PDF) From the release: Manufacturing PMI rose to a twenty-five month high. Growth of output and new orders strengthened. Weaker fall in employment. Price pressures building. The UK manufacturing sector ended 2009 on a positive footing. The headline seasonally adjusted CIPS/Markit Purchasing Managers’ Index® (PMI®) reached a twenty-five month high of 54.1 in December, up sharply from 51.8 in November. The average reading for Q4 2009 as a whole was the highest since the final quarter of 2007.
1/4	4:30am	Net Consumer Lending	1.1B	0.6B	0.3B
		For November Provided by Bank of England
1/4	4:30am	Mortgage Approvals (BOE)	61K	58K	57K
		For November Provided by the Bank of England
1/5	4:30am	Construction PMI	47.1	47.6	47.0
		For December Provided by: Chartered Institute of Purchasing and Supply (CIPS) (sub. req'd)(PDF) From the release: New order volumes contracted following an increase in November. Staffing levels were cut again. Construction companies forecast a recovery in the sector in 2010. December data pointed to a further contraction in UK construction activity, extending the current downturn into its twenty-second successive month. Subdued demand was the main factor underlying reduced activity, as levels of new business, which some companies report are still at low levels, fell slightly during the month. However, despite the continuing recession and a further cut in employment, construction companies remained confident that a recovery will occur in 2010.
1/5	7:01pm	Consumer Confidence Index (NCCI)	69	72	74 73
		For December (s.a.) Provided by: Nationwide Previous Release: PDF Current Conditions: pr. 20, 22 (Oct), 19 (Sep), 17 (Aug), 16 (Jul), 17 (Jun), 18 (May), 21 (Apr), 20 (Mar), 22 (Feb), 23 (Jan), 28 (Dec), 32 (Nov), 35 (Oct), 39 (Sep), 46 (Aug), 49 (Jul), 58 (Jun) Expectations Index: pr. 108, pr. 106 (Oct), 108 (Sep), 94 (Aug), 89 (Jul), 88 (Jun), 76 (May), 70 (Apr), 57 (Mar), 57 (Feb), 51 (Jan), 61 (Dec), 67 (Nov), 69 (Oct), 58 (Sep), 58 (Aug), 55 (Jul), 67 (Jun) Spending Index: pr. 1.6, pr. 103 (Oct), 103 (Sep), 97 (Aug), 94 (Jul), 105 (Jun), 103 (May), 98 (Apr), 97 (Mar) 92 (Feb), 83 (Jan), 82 (Dec), 69 (Nov), 55 (Oct), 53 (Sep), 52 (Aug), 53 (Jul), 63 (Jun)
1/5	7:01pm	BRC Shop Price Index y/y	2.2%		0.2%
		For December Provided by: British Retail Consortium Previous Release: HTML DOC Shop Prices m/m: pr. 0.2% (Nov), 0.0% (Oct), 0.0% (Sept), 0.0% (Aug), -0.1% (Jul), 0.2% (Jun), 0.5% (May), -0.5% (Apr), 0.4% (Mar), 1.2% (Feb), 0.2% (Jan), -2.0% (Dec), 0.2% (Nov)
1/6	4:30am	Services PMI	56.8	56.8	56.6
		For December Provided by: Markit Official Release: PDF From the release: "The UK service sector ended 2009 on a positive note, with growth of both activity and new business improving since November. Expectations for the coming year remained high and, despite declining again, employment fell at the slowest pace for nearly a year-and-a-half. Backlogs and employment fell at slower rates. Cost inflation accelerated to steepest in over a year "
1/7	4:00am	House Prices m/m (Halifax Bank of Scotland)	1.0%	0.6%	1.3% 1.4%
		For December Provided by: Halifax Bank Of Scotland Official Release: PDF Prices 3m/y: 1.1%, pr. -1.6% (Nov), -4.7% (Oct), -7.4% (Sep), -10.1% (Aug), -12.1% (Jul), -15.0% (Jun), -16.3% (May), 17.7% (Apr), -17.5% (Mar), 17.7% (Feb), -17.2% (Jan), 16.2% (Dec), -14.9% (Nov) Avg. Price (s.a.): £169,042, pr. £167,451 (Nov), £165,528 (Oct), £163,487 (Sep), £160,973 (Aug), £159,623 (Jul), £157,713 (Jun), £158,565 (May), £154,716 (Apr), £157,326 (Mar), £160,327 (Feb) From the Release (Martin Ellis, housing economist): "House prices increased for the sixth consecutive month in December. The 1.0% rise between November and December was slightly below the average increase over the previous five months. Prices increased for the second successive quarter following falls in both the first two quarters of 2009. Prices in December were 1.1% higher on an annual basis, marking the first rise since March 2008. House prices have risen by 9.4% since reaching a low in April 2009. The significant cut in interest rates following the worldwide financial upheaval in the autumn of 2008 has markedly reduced the burden of servicing a mortgage for many households. This has helped to stimulate housing demand, albeit from a low base. The recent improvement in the labour market, highlighted by increasing numbers of people in employment in both September and October, has also supported housing demand. The prospects for the market this year will depend on how the UK economy evolves and whether there is a significant increase in the supply of properties for sale. Overall, our current view is that house prices will be flat during 2010."
1/7	7:00am	BOE Interest Rate Statement	0.50%	0.50%	0.50%
		Provided by: Bank of England Official Release: Statement From the Release: "The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to continue with its programme of asset purchases totalling £200 billion financed by the issuance of central bank reserves. The Committee expects the announced programme to take another month to complete. The scale of the programme will be kept under review." With the Bank of England waiting on new growth and inflation forecasts in its February meeting, today's decision was widely predicted and didn't have much impact on the Pound. There is still uncertainty regarding what the Monetary Policy Committee and Governor Mervyn King intend to do with their asset buying plan which is due to take another month to complete. While policy makers are focused on steering the economy back to growth there is a growing debate about what the government will do in regards to tightening its budget deficit which now stands at 12% of GDP this year. The Brown government has to call elections by June and depending on who wins will impact the pace of fiscal tightening. The Bank has to judge that and react accordingly. The economy is beginning to pick up steam fundamental indicators showed this week. December's manufacturing and services PMI's registered strong results, with the manufacturing sector expanding at its quickest pace in 25 months. Housing prices meanwhile are up a 6th straight month according to Halifax Bank of Scotland. Still, with the economy still technically in recession in the 3rd quarter the BOE does not want to remove stimulus by tightening monetary policy.
1/8	4:30am	Producer Price Index Input	0.1%	-0.2%	0.1%
		Monthly Change for December Provided by: Office of National Statistics Input y/y: 6.9%, pr. 4.0% (Nov), 0.1% (Oct), -6.5% (Sep), -7.5% (Aug), -12.1% (Jul), -11.0% (Jun), -9.4% (May), -5.0% (Apr), -0.4% (Mar), 0.5% (Feb), 1.5% (Jan), 4.3% (Dec), 8.6% (Nov)
1/8	4:30am	Producer Price Index Output	0.5%	0.2%	0.2%
		For December Provided by: Office of National Statistics (ONS) Previous Release: HTML Output y/y: 3.5%, pr. 2.9% (Nov), 1.7% (Oct), 0.4% (Sep), -0.4% (Aug), -1.3% (Jul), -1.2% (Jun), -0.3% (May), 1.2% (Apr), 2.0% (Mar), 3.0% (Feb), 3.5% (Jan), 4.7% (Dec), 5.1% (Nov) Output Core m/m: 0.7%, pr. -0.1% (Nov), 0.3% (Oct), 0.5% (Sep), 0.2% (Aug), 0.5% (Jul), -0.6% (Jun), 0.2% (May), 0.4% (Apr) Output Core y/y: 2.6%, pr. 2.0% (Nov), 2.0% (Oct), 1.4% (Sep), 0.7% (Aug), 0.2% (Jul), 0.1% (Jun), 1.2% (May), 2.4% (Apr)
1/11	7:00pm	BRC Retail Sales y/y	4.2%		1.8%
		For December Provided by: British Retail Consortium (BRC) Official Release: HTML DOC From the Release: "UK retail sales values rose 4.2% on a like-for-like basis from December 2008, when sales had dropped 3.3%, due to turmoil in financial markets hitting consumer confidence. On a total basis, sales rose 6.0% against a 1.4% decline in December 2008." Stephen Robertson, Director General of BRC, said: "These are stronger figures than we dared hope for. After a surprisingly muted November, this is the best total sales growth for a December since 2005 and goes well beyond just making up for the sales fall the sector suffered a year ago. The figures were certainly helped by the comparison with last December's terrible results but customers clearly felt more confident about spending than they have for some time. Sales growth was also helped by the VAT cut dropping out of the 12-month comparison, December being the first and only month where the 15 per cent rate is the same as a year earlier.”
1/11	7:00pm	RICS House Price Balance	30%	38%	35%
		For November Provided by: Royal Institute of Chartered Surveyors (RICS) Official Release: HTML PDF From the Release: "The December housing market survey shows the gap between new buyer enquiries and new instructions to estate agents continuing to narrow. However, for the time being the increase in demand still appears to be outstripping the increase in supply, albeit at a more modest pace than previously. This is reflected is the still significant majority of surveyors who are seeing residential property prices rise; the net balance of surveyors reporting price increases (rather than decreases) edged down to 30% from 35% in November. On the demand side, new buyer enquiries increased for the fourteenth consecutive month. However, with the net balance falling to +20, enquiries rose at the slowest pace since January 2009. Other demand indicators are also losing some momentum although they remain in positive territory. The newly agreed sales balance slipped to +22 from +24 while the sales expectations net balance dropped to +6. On the other hand, the actual level of average completed sales per surveyor edged up fractionally to 19.1, the highest reading since March 2008."
1/12	4:30am	Trade Balance	-6.8B	-6.9B	-7.1B
		Visible Trade Balance for November Latest Release Provided by: National Statistics Office Current Release: HTML Total Bal.: -£2.9B, pr. -£3.2B (Oct), -£3.0B (Sep), -£2.3 (Aug), -£2.4B (Jul), -£2.4B (Jun), -£1.9B (May), -£3.0B (Apr), -£2.5 (Mar), -£3.25B (Feb), -£3.58 (Jan), -£3.61 (Dec), -£4.47B (Nov)
1/12	4:30am	DCLG House Price Index y/y	0.6%	0.4%	-2.2%
		For November Provided by: Communities and Local Government Official Release: HTML PDF
1/13	4:30am	Manufacturing Production	0.0%	0.3%	0.0%
		For November Provided by: Office of National Statistics (ONS) Previous Release: PDF y/y: pr. -7.8% (Oct), -9.8% (Sep), -11.3% (Aug), -10.1% (Jul), -11.7% (Jun), -12.7% (May), -12.7% (Apr), -12.9% (Mar), -13.8% (Feb), -12.8% (Jan), -10.2% (Dec), -8.3% (Nov)
1/13	4:30am	Industrial Production	0.4%	0.3%	-0.1% 0.0%
		For November Provided by: Office of National Statistics (ONS) Previous Release: PDF y/y: -6.0%, pr. -8.4% (Oct), -10.3% (Sep), -11.2% (Aug), -9.3% (Jul), -11.1% (Jun), -11.9% (May), -12.3% (Apr), -12.4% (Mar),
1/13	10:00am	NIESR GDP Estimate	0.3%		0.2%
		For December Provided by: National Institute of Economic and Social Research Official Release: PDF From the Release: "Our monthly estimates of GDP suggest that output grew by 0.3 per cent in the three months ending in December, following on from a growth of 0.2 per cent in the three months ending in November. These data show that GDP fell by 4.8 per cent in 2009. This is a bigger fall than in any year of the great depression and is Britain’s biggest contraction since 1921. As the graph below shows, the broader picture of the depression is that output fell sharply for twelve months until March and has not changed very much since then, although evidence of a recovery is starting to emerge."
1/15	5:00am	Leading Index	0.9%		1.0%
		For November Provided by: Conference Board Officia Release: HTML PDF Coincident Index: 0.1%, pr. 0.1% (Oct), 0.1% (Sep), -0.1% (Aug), 0.1% (Jul), 0.1% (Jun), -0.3% (May), 0.0%, (Apr), -0.3% (Mar), -0.3% (Feb), -0.3% (Jan), 0.1% (Dec), -0.2% (Nov), 0.1% (Oct)
1/17	7:01pm	Rightmove House Price Index	0.4%		-2.2%
		Monthly Change for January Provided by: Rightmove Previous Release: HTML PDF HPI y/y: 4.1%, pr. 1.7% (Dec), 1.6% (Nov), 0.2% (Oct), -1.5% (Sep), -3.1% (Aug), -3.1% (Jul), -5.5% (Jun), -6.2% (May), -7.3% (Apr), -9.0% (Mar), -9.1% (Feb), -7.3% (Jan), -6.3% (Dec), -7.1% (Nov) From the Release: "If your New Year’s resolution is to move home, you should note that the first house price statistics relating to activity in 2010 show increases in both seller confidence and buyer interest. The optimism of sellers who have come to market so far in January has resulted in a 0.4% rise, causing a big turnaround in figures that were on course for a third consecutive monthly fall. This coincides with potential home-mover activity hitting new record highs, with the Rightmove website recording its busiest ever week. Miles Shipside, commercial director of Rightmove comments: “This rise in asking prices is an early indicator that new sellers in 2010 have the confidence to try for a higher price, as the index was lined up for a fall until the turn of the year. We were expecting a drop of about 1%, as the majority of this month’s index falls in December, but the optimism of those early January sellers flipped it around. With home-movers setting new search records on Rightmove and a lack of property for sale, the decision of post New Year sellers to ask for a higher price could be a shrewd move. In spite of problems brewing for later in the year, there are definitely some of the ingredients for a buoyant spring, and a window of opportunity that sellers may wish to take advantage of”."
1/19	4:30am	Consumer Price Index y/y	2.9%	2.6%	1.9%
		For December Provided by: Office of National Statistics CPI m/m: 0.6%, forecast 0.3%, pr. 0.3% (Nov), 0.2% (Oct), 0.0% (Sep), 0.4% (Aug), 0.0% (Jul), 0.3% (Jun), 0.6% (May), 0.2% (Apr), 0.2% (Mar), 0.9% (Feb), -0.7% (Jan), -0.4% (Dec) Core CPI y/y: 2.8%, pr. 1.9% (Nov), 1.8% (Oct), 1.7% (Sep), 1.8% (Aug), 1.8% (Jul), 1.6% (Jun), 1.6% (May), 1.5% (Apr), 1.7% (Mar), 1.6% (Feb), 1.3% (Jan), 1.1% (Dec), 2.0% (Nov) UK consumer inflation data came in red hot for the month of December. The annual rate jumped by a full 1%, posting a 2.9% reading compared to November's 1.9%. That beat forecasts, and was the largest change in the annual rate from one month to another since records began in 1997. On the month prices were up 0.6%, double the 0.3% forecast be economists. While higher oil prices accounted for some of the monthly shift, the yearly figure was boosted as at this time last year there was a sales tax cut which lowered retail prices. Therefore the core annual rate also saw a dramatic shift, climbing 2.8% compared to November's 1.9%. Still, since the data surprised economists on the upside, it is an early indication that inflation pressures may accelerate in 2010. While the Bank of England did mention that short-term inflation was likely to jump, today's report will add pressure for the Bank to begin considering steps it needs to tighten policy.
1/19	2:00pm	BOE Governor Mervyn King Speaks
		Provided by: Bank of England
1/20	4:30am	Claimant Count Change	-15.2K	-3.3K	-10.8K -6.3K
		For December Provided by: Office of National Statistics Claimant Un. Rate: 5.0%, pr. 5.0% (Nov), 5.0% (Oct), 5.0% (Sep), 5.0% (Aug), 4.9% (Jul), 4.8% (Jun), 4.8% (May), 4.7% (Apr), 4.5% (Mar), 4.3% (Feb), 3.8% (Jan), 3.6% (Dec), 3.3% (Nov) ILO Rate 3m/3m (Nov): 7.8%, pr. 7.9% (Oct), 7.8% (Sep), 7.8% (Aug), 7.9% (Jul), 7.8% (Jun), 7.6% (May), 7.2% (Apr), 7.1% (Mar), 6.7% (Feb), 6.5% (Jan), 6.3% (Dec), 6.1% (Nov) The UK's labor market got another shot in the arm as the number of claims for jobless benefits declined 15,000 to 1.61 million for December. That figure was better than expected and followed a better than originally reported 10,800 drop in jobless claims in November. The claimant count unemployment rate remained at 5%, while the ILO 3-month moving average of the unemployment rate for the month of November, the "official" unemployment rate notched down to 7.8% from 7.9%. The two strong months of data is a welcome sign that unemployment may have peaked, and that unemployment levels have not reached the levels originally predicted by government officials. With the Pound strengthened by sentiment that the Bank of England is likely done expanding its quantitative easing asset purchase plan, and a pop in December's consumer inflation reading, this data should help support the Pound. Still, the UK has been very sluggish to climb out of its recession, as it was still posting negative growth in the 3rd quarter. That made six consecutive quarters of contraction which has destroyed more than a half a million jobs which the labor market needs to gain back. Also, the government's fiscal position is strained and the government will be forced to scale back spending on welfare programs. In today's trading, the Pound fell to the greenback, as the greenback was bolstered by risk aversion, the Pound did continue to extend its gains vs the Euro.
1/20	4:30am	Unemployment Rate	7.8%	8.0%	7.9%
		For 3 months through November ILO Unemployment Rate Provided by: Office of National Statistics See "Claimant Count Change" for commentary.
1/20	4:30am	BOE Meeting Minutes
		Minutes for Meeting Held on January 7 Provided by: Bank of England Previous Release: PDF
1/21	4:30am	Public Sector Net Borrowing	15.7B	18.6B	18.7B 20.3B
		For December Provided by: National Statistics Office Official Release: PDF Public Finances (PSNCR): 23.6B, pr. 14.6B (Nov), 5.9B (Oct), 19.4B (Sep), 10.4B (Aug), 0.2B (Jul), 19.0B (Jun), 18.8B (May), 5.2B (Apr), 28.4B (Mar), 4.4B (Feb), -25.1B (Jan), 19.9B (Dec)
1/21	4:30am	M4 Money Supply	-1.1%	1.0%	0.1%
1/21	6:00am	CBI Industrial Trends Orders	-39	-39	-42
		For January Provided by: Confederation of British Industry Official Release: News Release Factory orders fell at the slowest pace in a year in January, while manufacturing output in the last three months rose at its fastest pace in 3 years. The data adds to other positive releases from the UK this week including a strong monthly jobs report and stronger-than-expected consumer inflation. The Confederation of British Industry's monthly industrial trends survey's total order book balance improved to -39 from -42 in December. The export orders balance rose to its highest since December 2008, at -33. In a quarterly report that accompanied the release showed a more marked improvement over the past thre months and suggested companies were their most optimistic in alsmot three years.
1/22	4:30am	Retail Sales m/m	0.3%	1.3%	-0.3%
		For December (s.a.) Provided by: National Statistics Office Retail Sales y/y: 2.1%, forecast 3.0%, pr. 3.1% (Nov), 3.4% (Oct), 2.9% (Sep), 2.1% (Aug), 2.9% (Jul), 3.0% (Jun), -2.3% (May), 2.3% (Apr), 0.8% (Mar), -1.8% (Feb), 2.4% (Jan), 3.1% (Dec '08)
1/26	4:30am	Gross Domestic Product q/q	0.1%	0.4%	-0.2%
		Advance Version for 4th Quarter (1st Release) Provided by: Office of National Statistics GDP y/y: -3.2%, pr. -5.1% (3Q), -5.5% (2Q), -4.1% (1Q), -2.0% (4Q '08), -0.3% (3Q), 1.4% (2Q), 2.3% (1Q), 2.8% (4Q '07) The UK economy limped out of its recession in the 4th quarter, with GDP growth barely registering positive growth at 0.1%. That was lower than expectations and hurt the Pound in today's trading. The data implies that the UK recovery is a weak one and poses a challenge for the Bank of England as they consider what to do next week. Expectations had been building that this could be the meeting in which bank officials signaled the economy was strong enough to start withdrawing emergency stimulus, but with this disappointing result, that may not be the case. Though they may not expand their quantitative easing program, the chance that they may have to revisit such action later in the year may now be a more distinct possibility. Services which make up about 75% of the economy expanded 0.1% in the quarter. Industrial production grew 0.1%, which pushed the manufacturing sector up 0.4%. For 2009, the economy shrank 4.8%, the biggest annual drop since records began in 1949. For the full six quarters of the recession, GDP has shrank 6%, the deepest recession on record.
1/26	4:30am	Index of Services 3m/3m	0.1%	0.4%	-0.2%
		For the 3 months through November Provided by: Office of National Statistics
1/26	4:30am	Mortgage Approvals (BBA)	45.9K	46.0K	44.7K
		For December Provided by: British Bankers Association Official Release: HTML PDF Mortgage Lending: £3.5B, pr. £3.2B (Nov), £3.1B (Oct), £3.1B (Sep), £2.8B (Aug), £1.6B (Jul), £2.2B (Jun), £2.3B (May), £2.7B (Apr), £3.9B (Mar), £3.9B (Feb), £2.9B (Jan), £2.9B (Dec), £2.9B (Nov) From the Release: "Mortgage lending strengthened slightly in December, with gross lending inflated by some borrowers pushing through purchases ahead of the end of stamp duty relief. Consumer credit was weak, in line with weak retail sales volumes, but savings recovered from a weak November figure, to an above-trend rise. BBA statistics director, David Dooks, said of the latest data: The high street banks continued to lend substantial amounts in the weaker mortgage arket of 2009 approving more than 440,000 loans for house purchase. Their share of gross ending went up from a historical level of about two-thirds to three-quarters, due to specialist enders largely withdrawing from the market and building society finance contracting. Households’ unsecured borrowing contracted throughout the year, particularly on personal oans. After paying down debt, people sought to build up their savings.”"
1/26	4:45am	BOE Governor Mervyn King Speaks
1/27	6:00am	CBI Distributive Trades Survey	-8	12	13
		For January Provided by: Confederation of British Industry Official Release: News Release From the Release: "The UK high street reported a slight fall in year-on-year sales in early January, disappointing retailers' predictions and ending a three-month run of sales growth, the CBI said today. Responding to the CBI's latest Distributive Trades Survey, 28% of retailers said that the volume of sales in the year to early January had risen, while 36% said it had dropped. The resulting balance of -8% was weaker than predictions made last month of sales being broadly flat on a year ago (-2%)."
1/28	7:01pm	Consumer Confidence Index (GfK)	-17	-18	-19
		For January Provided by: GfK Group
1/29	2:00am	Nationwide House Prices m/m	1.2%	0.4%	0.5% 0.4%
		For January Provided by: Nationwide House Prices Official Release: PDF House Prices y/y: 8.6%, forecast 7.3%, pr. 5.9% (Dec), 2.7% (Nov) 2.0% (Oct), 0.0% (Sep), -2.7% (Aug), -6.2% (Jul), -9.3% (Jun), -11.3% (May), -15.0% (Apr), -15.7% (Mar), -17.6% (Feb), -16.6% (Jan), -15.9 (Dec '08), -13.9% (Nov), -14.6% (Oct) Avg. Price: pr. £163,481, £162,103 (Dec), £162,764 (Nov), £162,038 (Oct), £161,816 (Sep), £160,224 (Aug), £158,871 (Jul), £156,442 (Jun), £154,016 (May), £151,861 (Apr), £150,946 (Mar), £147,746 (Feb), £150,501 (Jan), £153,048 (Dec), £158,442 (Nov) From the Release (Martin Gahbaur, Nationwide Chief Economist): "House prices strengthened their upward momentum at the start of 2010, increasing by a seasonally adjusted 1.2% month-on-month in January. The 3 month on 3 month rate of change – usually a smoother indicator of the near term trend – dipped slightly from 2.3% in December to 2.1% in January, but this primarily reflects the smaller price increases recorded in November and December. At £163,481, the average price of a typical UK property cost 8.6% more than a year earlier in January, up from 5.9% in December. Unless there is a fall in property values in February, annual house price inflation is likely to move into double-digit territory next month for the first time since May 2007."

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Central Bank Watch - Latest Bank of England Decision

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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).