A stellar week for sterling has seen the pound strengthen by more than 2% against the US and Canadian dollars and close to 2% against the euro.
The drivers are a combination of the PMI data on Wednesday, which wasn’t as bad as markets expected, and hopes of a closer relationship to Europe’s single market under Rishi Sunak’s premiership.
Against the US dollar, sterling reached its highest point since mid-August and against the euro for three weeks, but well up on the three-month average.
While lack of labour has allegedly been a barrier to regrowth in the UK post-Covid, according to the Office for National Statistics more than a million people arrived in the UK in the year to June. The numbers were boosted by new arrivals to British universities post-Covid, plus refugees from Ukraine, Hong Kong and Afghanistan. Around 560,000 people left the country too.
Similar numbers of working age people have left the UK workforce too, a problem that Huw Pill, chief economist of the Bank of England referred to in a speech yesterday. He said: “Rising inactivity among the working age population represents an adverse supply shock,” and this will prove inflationary if firms have to raise wages to attract staff.
There are reports that talks have made progress to end the scheduled rail strikes that threaten to wreck many entertainment, hospitality and retail businesses over Christmas.
There was no data out of the US yesterday or today, being Thanksgiving, and precious little from the UK either. However, from Germany the Ifo Business Climate reading was considerably better than expected at 86.3.
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