The interest rate decision from the Bank of England (BoE) yesterday sent the pound in two different directions. Before the vote by the nine members of the BoE’s Monetary Policy Committee (MPC) GBP/EUR strengthened to its best for eight years. However, after the vote, the fact that three of them opted to cut rates, two more than expected, plus warnings over the economy, sent the pound into a tail spin. GBP/USD starts today at its weakest since April.
Against the euro we are still trading at very close to that post-referendum high, reflecting that overall it’s been a mixed week for sterling, with strong gains against NOK, AUD and NZD to set alongside the 1% loss against the US dollar.
The general picture is that the British economy is in trouble but with inflation still high. While leaving interest rates unchanged the BoE cut its forecast to zero growth in the last three months of 2024. It blamed the recent budget, noting “significant uncertainty around how the economy might respond to higher overall costs of employment”.
This morning, we have heard UK retail sales growing by 0.2% in November. This was a sharp rise from the 0.7% drop in October but was less than expected nonetheless.
The US government faces a potential shutdown arising from Congress voting down the Trump-backed funding bill. If a deal is not forthcoming later today some federal workers will be sent home and others’ pay will be suspended. This seems so far not to have hit the US dollar.
In yesterday’s data, Germany’s GfK Consumer Confidence reading improved fractionally but remains deep in negative territory. Japan’s inflation rate rose to 2.9% yesterday, after the Bank of Japan maintained its interest rate at 0.25%, which is where it has been since July.
With little data to come over the next week or so, let’s revisit what happened this week. For the UK, services PMI rise to 51.4 but manufacturing PMI fell to 47.3 (anything over 50 denotes general optimism and under 50 pessimism), average earnings stayed at 5.2%, double the rate of inflation, which rose to an annual rate of 2.6%.
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