UK Economic Comment – April 2012

In Uncategorized on April 25, 2012 by treasuryconsultancy Tagged: , , , ,

3 month £ rate:1.01438 (0.98169 Oct 11)  (0.7575 Dec 10) (0.605 Dec 09)

6 month £ rate:  1.33031 (1.25969 Oct 11) (1.05125 Dec 10) (0.97313 Dec 09)

Repo (Base) Rate: 0.5% reduced from 1.0% on 5th March 2009


£/$       1.5484 (1.5956 Oct 11) (1.539 Dec 10)  (1.6378 Nov 09) (1.4920 Dec 08)

$/euro  1.3203 (1.3884 (1.4162 Oct 11) (1.328 Dec 10) (1.4818 Nov 09)  (1.2872 Dec 08)

£/euro  1.2232 (1.1492 Oct 11) (1.1587 Dec 10)  (1.1054 Nov 09) (1.1587 Dec 08)

(£/euro  0.8176 (0.7802 Oct 11) (0.863 Dec 10)  (0.946 Nov 09) (0.863 Dec 08) )

Economic Events, Interest Rates and Inflation

So technically the UK economy shrank again in the 1st Quarter of 2012 by 0.2%.    However the margin of error is such that the revision of the data in 3 months could turn the last Quarter positive after all. Bearing in mind the state of the economy(ies) in the EU, although their growth data for the same period are not yet generally available, most forecasters are expecting a decline throughout the EU of more than 0.2%, in which case the UK will be seen to have done pretty well.                                                                   Let’s look forward rather than backwards – although the Euro ‘Car Crash’ will continue to take all of the headlines.

10 Year Sovereign Bond yields they are still pretty telling, with Greece now standing at 21.45% having touched over 36% at the end of February, compared with Germany – currently 1.71%, (1.82% at end of Feb) Portugal at 11.47% (13.86%), Spain 5.88% (4.98%) Ireland 6.98% (7.0%) and the UK at 2.11% (2.14%).

The outlook for interest rates still looks stable, with both the Bank of England and the US Federal Reserve suggesting that Official rates could stay at current levels for one or two  more years – although actual rates for corporates, and you and me are much higher.        The trick will be to increase Official rates without lenders increasing their rates to maintain their spread.

The Euro

The elections in the Euro countries may well change the actors and give the message to the European Commission and the ECB that they don’t want to hear, but at least some people are now talking about the possibility or Greece (and others) leaving the Euro. The trouble is that it took so much care, attention and time to establish, it is difficult to imagine how any country could leave, in anything other than an immediate – “here yesterday, gone today”  manner. Almost certainly all of the wealthy Greek residents have already moved their Greek Euro assets offshore and corporates keep their Greek euro balances to an absolute minimum, which leaves money held by the Greek population, the Banks and the Government. That may actually make it easier, but Corporates both domestic, and those with operations in Greece, will already have their contingency arrangements in hand.  Until they can make Greece attractive for holidaymakers, to bring in overseas income, the structural problems will remain

What about contagion? – the knock on effect in Portugal, Spain and Italy?  I suspect that the same is true as for Greece – the wealthy moved long ago, and the corporates have their contingency plans in place.

We have a lot to thank Gordon Brown for!


UK Economic Comment – November/December 2011

In Uncategorized on November 25, 2011 by treasuryconsultancy Tagged: , , , ,

3 month £ rate:1.03263 (0.98169 Oct 11)  (0.7575 Dec 10) (0.605 Dec 09)

6 month £ rate:  1.33031 (1.25969 Oct 11) (1.05125 Dec 10) (0.97313 Dec 09)

Repo (Base) Rate: 0.5% reduced from 1.0% on 5th March 2009


£/$       1.5484 (1.5956 Oct 11) (1.539 Dec 10)  (1.6378 Nov 09) (1.4920 Dec 08)

$/euro  1.3269 (1.3884 (1.4162 Oct 11) (1.328 Dec 10) (1.4818 Nov 09)  (1.2872 Dec 08)

£/euro  1.1670 (1.1492 Oct 11) (1.1587 Dec 10)  (1.1054 Nov 09) (1.1587 Dec 08)

(£/euro  0.8570 (0.7802 Oct 11) (0.863 Dec 10)  (0.946 Nov 09) (0.863 Dec 08) )

Economic Events, Interest Rates and Inflation

The optimism and idealism at the end of the 20th century has been overtaken by the brutal realism of the new decade

The shock news that hit the markets last week was that German Bond Auction had only been able to sell two thirds of the €6bn that they wanted to sell. There were various reasons (excuses) given for this but whatever the reason, it probably means that investors – banks and longer term institutional investors are having second thoughts about buying such low yielding bonds when there are so many uncertainties surrounding the euro.

Since last month, Greek 10 Year Sovereign Bonds are now yielding 28.77%  up from 25.17%  in October. German Bonds yield just 2.25% (2.12%), Portugal 13.32% (12.61%), Spain 6.71% (5.55%), Italy 7.37% (5.95%) and UK 2.2% (2.56%).

That the UK can borrow at even lower rates, along with Switzerland, Sweden, Japan and the US is of only short term benefit, as it underlines the extreme stress in the international financial system.

Although the bureaucracy within the euro area makes it difficult for them to take decisions quickly, there are still no clear plans to allow Greece and other countries facing problems, to escape from the euro, so one alternative is for the deficits to be financed by the European Central Bank (ECB). The most extreme solution is a breakdown of the current democratic system in Greece – but it is not possible to see how likely that might be.

In the UK we have different problems with the consumers sitting on their hands and signs that retail spending in the next 4 weeks is going to be much weaker than last year.    Another poor set of corporate results seems probable – especially from the weaker retailers.

One additional to note is that the Sterling  has strengthened against the Euro, although it is still much weaker than the period up to 2008, when it was higher because UK interest rates were much higher than in the Euro countries. Against the USD it is comparatively weak, dragged down by the link to the Euro. This is important because a strong Dollar means higher import costs including energy (oil & gas) food and electronics, which could give inflation an unpleasant boost.



Mr Darling’s Budget

In Uncategorized on April 28, 2009 by treasuryconsultancy

Why was there so much surprise about the content of the Budget last week? We were able to make educated guesses about the level of Public Sector Debt. We already knew some of details of the proposals because they were either in November’s Pre-Budget report or leaked to the press during the days running up to last Wednesday. What was slightly more surprising, was the forecast that economic growth would return in the final quarter of this year – but we have to have an election before June 2010, so anything more pessimistic would have produced really scary figures.
When Gordon Brown was the Chancellor of the Exchequer, there was no doubt that his Budgets were all his own work. Now that the Chancellor is Alastair Darling, there still seems to be Mr Brown’s fingerprints all over the Budget, which is only to be expected given his management of the economy over the previous 10 years and the fact that he will be calling the next election.
So what is likely to be the impact on the economy? Very little, given that interest rates are already as low as they can be and the banks that needed to be bailed out have been bailed out. There could still be more trouble, such as additional banks getting into difficulties, although a major commercial failure might be more likely. The housing market could recover slightly but inflation and interest rates will probably stay at their present level, at least for 3 months whilst the economy responds to the new low interest régime.
On the Foreign Exchange markets, Sterling has already recovered a little against the Dollar, but not against the euro, which is more difficult to understand. However, exports could pick up and domestic demand could stay quite firm through the summer if more people decide to stay in this country for their holidays.
The message from the recent Treasurers Conference is that a further crisis in Pensions is likely because of low interest rates, and depressed equity markets. It will also be no surprise when the Pension Protection Fund has to increase the contributions from existing funds. But that is nothing compared with the cost of the public sector pension schemes where really big public expenditure savings can to be made with the capping of the Public Sector inflation linked defined benefit pension schemes. Someone has to do it and the potential costs are enormous. Either Mr Brown will cap them – to go out with a prudent bang, or it will be the first thing that Mr Cameron does. Either way, the public sector unions won’t like it and we may see major disruption as a result…………….Phew!