The day after the big announcement of the General Election (and inflation falling to manageable levels), the pound held onto most the gains it made on Wednesday. GBP/EUR is close to 2% stronger than this time last year, 1% better than last month and 0.7% better than last week. The numbers for GBP/USD are generally even more impressive.
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Sterling’s continued success is despite decidedly mixed signals on the demand side of the UK economy this morning. While the GfK Consumer Confidence reading was the best since December 2021, Retail Sales for the UK dropped by 2.3% in the year to April, considerably worse than expectations.
Yesterday’s Purchasing Managers Index (PMI) showed a divergence in business leaders’ optimism between countries. The UK’s service sector disappointed, showing a drop from 55 to 52.9. While this is nowhere near the 50 mark below which denotes overall pessimism, it was still poorer than expected. On the other hand, Germany’s manufacturing sector improved to 45.4 and the USA’s services PMI hit 54.8.
There is still almost a month to the next interest rate decision and the economic picture continues to be muddied.
Anyone looking for clear blue water between the two main challengers for the UK General Election may struggle, but a report in the FT makes it clear that business chief executives are looking for a clear victor, whichever it is, followed by decisive, competent action to improve infrastructure and speed up the planning process. Some mentioned that closer ties with Europe would be helpful.
Several UK bills going through parliament have been abandoned in the rush to the snap election. These include the Renters (Reform) Bill which would have banned no-fault evictions. However, another bill, reforming leaseholds, could still become law.
Elsewhere in the world, the release of the minutes of the Federal Reserve’s interest rate decision has led to volatility around USD, with markets reacting positively, initially, to the Fed’s hawkish concerns about inflation rising again, along with positive PMI data.
In Europe, rapidly rising pay in Germany, at 6.2% the biggest annual rises in a decade, has put the European Central Banks’s expected interest-rate cutting programme in doubt too.
The path to lower interest rates remains unclear in every major trading bloc.
