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 May, 2008

Date	EST	Indicator	Actual	Forecast	Previous
5/1	4:30am	Manufacturing PMI	51.0	50.7	51.3
		For April Provided by Chartered Institute of Purchasing and Supply (requires subscription) Prices: 61.9 Activity in the manufacturing sector in the UK fell to 51, the lowest level in 3 months, but the result was slightly above expectations. The prices sub-index increased to 61.9, the highest it has been since at least 1999, when the survey began being collected. Though the manufacturing sector may benefit from a falling Pound, by making British goods more competitive abroad, it will also work to stoke inflation as imports from abroad will cost more and consumer prices will increase. The Bank of England has acknowledged that it faces a difficult balancing act in promoting economic growth while trying to control inflation.
5/2	3:00am	House Prices m/m (Halifax Bank of Scotland)	-1.3%	-0.6%	-2.5%
		For April Provided by: Halifax Bank of Scotland Official Release: PDF HBOS House Prices y/y: -0.9% From the Release: "House prices fell by 1.3% in April. Prices were 0.9% lower on an annual basis... The decline in prices is driven by a squeeze on spending power and the rapid rise in house prices in the last few years. These factors have curbed housing demand. The rise in interest rates between August 2006 and July 2007 has increased average mortgage costs. A decline in 'real' earnings over the past year has also constrained housing demand."
5/5	2:00am	Holiday: May Day
5/6	4:30am	Services PMI	50.4	51.7	52.1
		For April Provided by: Chartered Institute of Purchasing and Supply Growth in the UK services sector slowed to the weakest pace in five years in April. The Services PMI indicator slipped 1.7 points to 50.4, much lower than expected by economists. The decline comes as a result of more restrictive access to credit for both households and businesses. The economy is facing some stiff headwinds as a result of a housing slump. Falling housing prices are curbing domestic demand. The Bank of England, worried about inflation, cannot cut rates at the same pace as the US did, with rates currently at 5% after 3 rate cuts since December. The BoE meets this week, and is expected to hold rates steady to combat inflation. The Pound weakened vs the Dollar following the release hitting an intra-day low at 1.9634 around 5Am EST, but then recovered. and was weaker against the Euro heading into NY trading.
5/6	7:01pm	Consumer Confidence Index (NCCI)	70	74	77
		For April Provided by: Nationwide Official Release: PDF Current Conditions: 65, pr. 74 Expectations Index: 74, pr. 79 Spending Index: 65, pr. 67 The Nationwide Consumer Confidence Index surprised on the downside, falling 7 points to 70 in April. It's the lowest figure since polling began in May 2004. Nationwide said that consumer sentiment may see further declines in the month to come. The primary concern are rising food and fuel prices, as well as whats turning into a serious housing slump. The Bank of England has lowered rates three times since December, but consumer don't feel like those cuts are being passed on by lenders. Also, loans for mortgages are getting harder to acquire with credit costs rising for banks. All the sub indexes fell, with consumers saying they were less wiling to spend on household goods and major purchases. From the Release: "Fionnuala Earley, Nationwide’s chief economist: The cut in interest rates in April did little to lift consumer spirits. Food and fuel prices remain high and, with house prices no longer rising, it is unlikely that consumer confidence will pick up very quickly. We may have to accept that confidence levels could well worsen before they get better. This is especially true as inflationary pressures mean the MPC will probably prefer to cut rates at a more gradual pace than many would prefer."
5/7	4:30am	Industrial Production	-0.5%	-0.1%	0.3%
		For March Provided by: Office of National Statistics (ONS) Ind. Production y/y: 0.2%, forecast 0.8%, pr. 1.3% (Feb), -0.1% (Jan), 0.9% (Dec) UK's industrial output levels fell 0.5% in March compared to February, dragged down declines in by electricity, gas and water production. Manufacturing, the key component also declined 0.5%. The market reacted to the release and put pressure on the pound. Data on production has been mixed this year, without a clear trend. The growth in output has definitely slowed, and can be expected to continue slowing because of global easing in demand. The latest 2 reports on Manufacturing PMIs for April and March have beat expectations and remains above the boom-bust level. Therefore the decline in industrial production shouldn't have much priority for the Bank of England's decision tomorrow. Inflation and the nation' housing slowdown are the forefront its concerns. From the release: Between February and March, manufacturing output decreased by 0.5 per cent. The fall in March was widespread with output decreasing in 10 of the 13 sub-sectors, increasing in two sub-sectors and one sub-sector remained unchanged. The only significant decrease was in the transport equipment industries, where output fell by 1.3 per cent during the month. Within transport equipment output of the motor vehicle production industry has fallen by 2.7 per cent, returning to more normal levels after a strong February. During February many car manufacturers increased production of new models prior to their launch. Within manufacturing, there were no significant increases in the month.
5/7	4:30am	Manufacturing Production	-0.5%	0.0%	0.4%
		For March Provided by: Office of National Statistics (ONS) UK's industrial output levels fell 0.5% in March compared to February, dragged down declines in by electricity, gas and water production. Manufacturing, the key component also declined 0.5%. The market reacted to the release and put pressure on the pound. Data on production has been mixed this year, without a clear trend. The growth in output has definitely slowed, and can be expected to continue slowing because of global easing in demand. The latest 2 reports on Manufacturing PMIs for April and March have beat expectations and remains above the boom-bust level. Therefore the decline in industrial production shouldn't have much priority for the Bank of England's decision tomorrow. Inflation and the nation' housing slowdown are the forefront its concerns. From the release: Between February and March, manufacturing output decreased by 0.5 per cent. The fall in March was widespread with output decreasing in 10 of the 13 sub-sectors, increasing in two sub-sectors and one sub-sector remained unchanged. The only significant decrease was in the transport equipment industries, where output fell by 1.3 per cent during the month. Within transport equipment output of the motor vehicle production industry has fallen by 2.7 per cent, returning to more normal levels after a strong February. During February many car manufacturers increased production of new models prior to their launch. Within manufacturing, there were no significant increases in the month.
5/7	5:30am	BRC Shop Price Index y/y	1.2%		1.1%
		For April Provided by: British Retail Consortium Inflation at retailers increased 1.2% annually on the back of a 4.7% annual increase in food prices. In March, food prices were up 4.1% on the year. On the month, food prices rose 0.7% and offset a 0.2% decrease in non-food prices, and resulting in an overall inflation rate of 0.1% on the month. . The inflation level is actually subdued as retailers continue to offer widespread discounts, trying to ramp up lackluster demand.
5/7	7:01pm	NIESR GDP Estimate	0.4%		0.4% 0.5%
		For April
5/8	7:00am	BOE Interest Rate Statement	5.00%	5.00%	5.00%
		Provided by: Bank of England Official Announcement: News Release 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.
5/12	4:30am	Producer Price Index Input	2.4%	1.8%	1.8%
		For April (seasonally adjusted m/m) Provided by: Office of National Statistics PPI Input y/y: 23.3%, forecast 21.4%, pr. 20.6% (Mar), 19.7% (Feb) Producer prices in the UK showed no signs of easing up, as prices climbed to the fastest annual pace since at least 1986. Prices charged by factories (PPI Output) rose 7.5% on the year and 1.4% on the month, both the highest totals since records began being kept. Core prices were up 4.6% on the year. Raw material costs (PPI Input) rose 2.4% on the month and 23.3% on the year. It's the biggest annual gain on record. Oil prices reached $126.27 per barrel last week, and will continue to have to be absorbed by the UK economy. CPI data comes out overnight on Monday, and is expected to show an increase to 2.6% for March in annual terms. The Pound strengthened following the report, as it may cause the Bank of England to phase in rate cuts at an even more gradual pace than they are currently set to do.
5/12	4:30am	Producer Price Index Output	1.4%	0.6%	0.9%
		For April (seasonally adjusted m/m) Provided by: Office of National Statistics PPI Output: 7.5%, forecast 6.4%, pr. 6.2% (Mar), 5.9% (Feb) PPI Output Core m/m: 1.0%, forecast 0.3%, pr. 0.3% PPI Output Core y/y: 4.6%, forecast 3.2%, pr. 3.1% Producer prices in the UK showed no signs of easing up, as prices climbed to the fastest annual pace since at least 1986. Prices charged by factories (PPI Output) rose 7.5% on the year and 1.4% on the month, both the highest totals since records began being kept. Core prices were up 4.6% on the year. Raw material costs (PPI Input) rose 2.4% on the month and 23.3% on the year. It's the biggest annual gain on record. Oil prices reached $126.27 per barrel last week, and will continue to have to be absorbed by the UK economy. CPI data comes out overnight on Monday, and is expected to show an increase to 2.6% for March in annual terms. The Pound strengthened following the report, as it may cause the Bank of England to phase in rate cuts at an even more gradual pace than they are currently set to do.
5/12	4:30am	Trade Balance	-7.44B	-7.5B	-7.6B -7.5B
		Visible Trade Balance for March Provided by: National Statistics Office Official Release: PDF Total Trade Balance: -£4.03B, forecast -£4.4B, pr. -£4.33B The UK global goods deficit narrowed from -£7.6 billion to -£7.4B. That is a seven month low. Imports declined 0.5% while exports were up 0.5%. Imports of airplanes, a rather volatile component, accounted for a good part of the imports decline. The weaker pound may be helping to benefit the export sectors in the UK, while weakening consumer confidence and spending may continue to put a dampen on imports, though items like airplanes are subject to companies spending. From the Release: "The UK’s deficit on trade in goods in March is provisionally estimated at £7.4 billion, compared with £7.6 billion in February. The deficit with EU countries in March was £3.7 billion, compared with £3.5 billion in February. The deficit with non-EU countries in March was £3.8 billion, compared with £4.1 billion in February. In March, total exports of goods rose by a half per cent to £20.1 billion while total imports of goods fell by a half per cent to £27.6 billion. Exports to EU countries rose a half per cent and exports to non-EU countries were virtually unchanged. Imports from EU countries rose one and a half per cent while imports from non-EU countries fell by two and a half per cent."
5/12	7:00pm	BRC Retail Sales y/y	-1.5%		-1.6%
		For April Provided by: British Retail Consortium (BRC) Official Release: PDF From the Release: "UK retail sales values fell 1.5% on a like-for-like basis, compared with April 2007, when sales were up 2.4%, helped by the warm sunny Easter weekend. The year-on-year declines in March and April were the worst since Spring 2005. Easter in March this year and some snow and rain this April against a hot sunny Easter last April, make comparisons difficult, but underlying trade remained tough. Food sales picked up after slowing in March but clothing and footwear fell further to their worst for at least 8 years. Furniture and larger homewares also remained down on a year ago, despite continued discounting and promotions. Consumer confidence has dropped sharply to new 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."
5/12	7:01pm	RICS House Price Balance	-95.1%	-80.0%	-79.4% -78.5%
		For April Provided by: Royal Institute of Chartered Surveyors (RICS) Official Release: Press Release Official Release: PDF The RICS House Trade Balance continued to deteriorate, with now 95% of surveyors reporting a fall compared to a rise in housing prices. As the report says, its 9th month that the balance has dropped, but is an imperfect measure of how deep prices have decreased. On May 2nd, Housing Prices, measured by the Halifax Bank of Scotland, showed prices down 1.3% in April. The housing sector in the UK is being pressured by poor lending for mortgages as a result of higher credit costs, limiting transactions, which may cause home sellers to lower their prices in order to attract the smaller pool of potential buyers. From the Release: "The balance of Chartered Surveyors reporting house price falls increased even further but tight supply is limiting the extent of the decline, says RICS. The RICS house price balance dropped for the ninth month in succession. 95.1% more Chartered Surveyors reported a fall than a rise in house prices, an increase from 79.4% in March. However, the scale of house price falls remains relatively small at this stage compared to past downturns. The lack of new instructions to sell property continues to provide a crutch to the market. Large numbers of distress sales (either repossessions or sales from those attempting to avoid the repossession process) have not yet appeared in the market place and, while mortgage arrears remain low and the employment situation remains strong, the lack of supply will continue to prevent large declines."
5/13	4:30am	Consumer Price Index y/y	3.0%	2.6%	2.5%
		For April Provided by: Office of National Statistics Core CPI y/y: 1.4%, forecast 1.3%, pr. 1.2% (Mar), 1.2% (Feb) CPI m/m: 0.8%, forecast 0.5%, pr. 0.4% (Mar), 0.7% (Feb) Coming on the heels of yesterday's producer data, the UK releases its April consumer prices which beat expectations on the upside. The annual pace of inflation rose to 3% - the highest in 13 months, with the core annual rate increasing to 1.4% from March's 1.2%. On the month, consumer inflation was 0.8% higher - the biggest increase in nearly 7 years. The two pieces of data, PPI and CPI, will put serious pressure on the Bank of England, which would like to support economic growth by cutting interest rates. Policy members have admitted they face a tough balancing act, and their attention and focus may now shift back to combating inflation, which means a cut in the next meeting may be off the table and the bank may take an even more gradual pace to cuts going forward. The bank is concerned with inflation in the medium to long term, and a slowing economy may prove to lower inflation by itself. The Pound jumped stronger following the release, but pared those gains and was lower vs the Dollar by the start of NY trading, as the higher inflation data pressured London stocks.
5/13	4:30am	Retail Price Index y/y	4.2%	3.9%	3.8%
		For April Provided by: Office of National Statistics Retail Price Index m/m: 0.9%, forecast 0.6%, pr. 0.3% The retail price index, which is a measure of the cost of living used in salary negotiations, rose to 4.2% in April, the most since November. Higher fuel and utility bills are cutting into consumer spending, and may lead to workers demanding high wage increase. See the comment for CPI for more analysis.
5/14	4:30am	Claimant Count Change	7.2K	0.1K	3.6K -1.2K
		For April Provided by: Office of National Statistics Claimant Count Unempl. Rate: 2.5%, forecast 2.5%, pr. 2.5% The number of people claiming unemployment benefits rose by 7,200 in April. Revised data for March and February showed that unemployment rose during those months (11,400 in the last 3 months). It's the first time since June 2006 that the Claimant count was positive for three month, and implies that the UK labor market is starting to loosen. With high inflation the central bank may not be able to lower rates at the pace they wanted in order to counter sputtering growth.
5/14	4:30am	Unemployment Rate	5.2%	5.2%	5.2%
		For March Provided by: Office of National Statistics
5/14	4:30am	Average Earnings Index and Bonus q/y	4.0%	3.7%	3.7%
5/14	5:30am	BOE Quarterly Inflation Report
		Provided by: Bank of England Official Release: Summary Official Release: PDF From the Release: "In the central projection, which assumes that Bank Rate follows market yields, GDP growth slows under the influence of weaker real income growth and tighter credit supply. But inflation rises further above the 2% target and remains there for several quarters as energy and import prices pick up sharply. The period of below-average growth opens up a margin of spare capacity which, together with the waning of the temporary boost from higher energy and import prices, helps to bring inflation back to around the target in the medium term. Both the slowdown in GDP growth and the pickup in inflation are more marked than in the February Report. The key risks to inflation are: on the downside, the possibility that a more prolonged period of subdued demand opens up a larger margin of spare capacity; and, on the upside, the possibility that the persistent period of above-target inflation leads to a lasting increase in medium-term inflation expectations. Overall the risks to growth lie to the downside in the medium term, but those to inflation lie to the upside."
5/18	7:01pm	Rightmove House Price Index			-0.1%
5/21	4:30am	BOE Meeting Minutes			7-2 Cut
5/21	4:30am	M4 Money Supply			0.8%
5/21	4:30am	Public Sector Net Borrowing			10.2B
5/22	4:30am	Business Investment q/q			1.8%
5/22	6:00am	CBI Industrial Trends Orders			-13
5/23	4:30am	Gross Domestic Product q/q			0.4%
		Second estimate for 1Q

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Central Bank Watch - Latest Bank of England Decision

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May
8th, 2008

Actual

Forecast

Revised Form

5.00%

N/A

Provided by: Bank of England
Official Announcement: News Release

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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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).