So Wednesday was yet another momentous day in British politics; the first coalition government since the war, only the second female Home Secretary and the first time the Prime Minister has admitted calling the Deputy Prime Minister a “joke” without later denying it. Admittedly, that was an earlier comment made during the election so it doesn’t count now that the Lib-Dems and the Conservatives are best mates. The bottom line is that we now know what concessions were made, we know who gets which job and we can concentrate on policy again; which is precisely what the markets appear to be doing. Sterling lost a little of its lustre in late trade as traders settled back to see what happens in terms of cold hard action rather than the rhetoric that elections and the afterglow of elections bring.
However, the new administration did get a vote of confidence from the Bank of England yesterday. Governor, Mervyn King delivered the Bank’s quarterly Inflation report and made it very clear that UK interest rates will stay low for a considerable time to come due to the troubled rimes ahead. His boost for the new government was that he is enthusiastic about plans to start reducing the budget deficit as soon as possible; a policy which the Tory’s have stuck to in spite of the dire warnings from Labour and the Lib-Dems. The BOE is clearly concerned that a delay in action would risk the UK losing its Triple A credit rating and that would have cost repercussions for the Bank and the Treasury. And if they have extra costs, guess who picks up the tab? Yes you and I.
On the plus side, the BOE sees inflation falling back within its target range of 0% to 2%, so that is a silver lining although the pressure to take profit on Sterling gains was increased when he markets heard of the plans for a bank levy which is likely to depress bank shares and dividends. There are further fears that a levy on bank profits alongside plans to break the banks up will mean banks could leave their less profitable high street operations in the UK but move the more lucrative market activities overseas; depleting the Treasury’s tax take and defeating the government’s plan.
Whilst Sterling slipped a bit, the Euro also remained weak and there are fears that this decline could increase in pace in line with market scepticism over the effectiveness of the euro rescue plan funding. I won’t go into the details here because it is becoming a slightly tedious daily saga but the Eurozone isn’t out of the woods by a long chalk. Suffice to say that some analysts are predicting a further fall of 5 or 6 percent in the Euro’s value against the US Dollar although the UK government will have to start proving itself if Sterling is to keep pace.
In other news, UK unemployment hit its worst level since 1994 last month. It is a dreadful statistic but employment levels are generally the last thing to improve after a downturn because employers are understandably more likely to squeeze everything they can out of existing staff before feeling bold enough to add to the wage bill. The Canadian Dollar remained strong in spite of contraction in Canada’s trade surplus; that is not so surprising though when the Canadian economy is still seen as one of the most stable and most immune to external economic shocks. And Australia’s employment levels rose again last month; fuelled largely by full time posts as opposed to recent rises in part time jobs. That is seen as further evidence that there is little slack left in the Aussie labour market and posts a question mark over Australia’s recent decision to cut the number of available visas.
We also had the US trade numbers yesterday and the deficit grew to $40.4 billion in March, well above the same period last year but so many other factors are weighing on currencies right now, it was largely ignored. However, perversely enough, a rise in the US trade deficit is a sign of growth in America because it signals an increase of import pressure which is largely consumer led.
Today brings the EU monthly bulletin, the British Trade balance which ought to show a slight increase in the deficit largely due to rising oil prices and we get the weekly jobless claims numbers form the US. Undoubtedly though the British press will be obsessed by the first cabinet meeting of the new administration and the European press will still be racked with angst over the Eurozone rescue package.
And finally, the expression busy as a beaver has new resonance after satellite images of remote parts of Canada showed a dam created by beavers which stretched 850 metres across, contains an area equivalent to roughly eight football pitches and, it is estimated, has taken something like 40 years to construct. Of course the original estimate was three weeks plus some snagging time but it must have been a government contract.
cat (Catharine Higginson) #1
cat (Catharine Higginson) #2
Glad they are coming in useful!
Ira_GRAF (Ira GRAF) #3
Hi Cathrine, just printed out your article for my next evening classes. I hope you don’t mind. Have a nice weekend Ira