Bank of England slash UK growth forecasts as strikes erupt in Europe
15/Nov/2012 • Currency Updates•
The big news out of the UK yesterday was the announcement by the Bank of England that it was slashing growth forecasts and warning the economy will not recover to its pre-recession levels until 2015. They expect inflation levels to remain above 2% for the next 18 months. Governor Sir Mervyn King also expects the 1% GDP growth seen in the third quarter to contract in the next quarter.
Although the BOE avoided QE due to strong GDP figures last month, King did not rule out a further injection moving on. It is his belief that the only chance for the UK economy to grow is by increasing exports, but this is unlikely to happen while the pound remains relatively strong.
In other news the UK’s employment data came in mixed with the Claimant Count Change coming in worse than expected as it showed there was a 10,100 increase in the number of people who claimed for jobless insurance in October. However, the unemployment rate fell to 7.8% from 7.9% with the number of people without a job in the three months through September to 2.514 million, down by 49,000. Credit rating agency Moody reiterated the UK’s triple A credit rating but in its annual report expected its recovery to take longer than forecast.
Fears continue to grow that the eurozone was on the verge of falling into another recession as economic growth in Germany fell to 0.2% from 0.3%. Economists expect EU statistics office Eurostat to announce that growth shrank to 0.2% in the third quarter, the same as the second quarter which would confirm the recession. This will be no surprise as Italy and Spain have been contracting for months while Greece is in a depression. The latest GDP figures showed Greece heading into a sixth year of recession with a 7.2% fall in the year to the third quarter.
The gloom around southern Europe thickened with a number of strikes in the region against austerity measures. Protesters took to the streets across Spain, Portugal, Italy, Greece and even in France and Belgium.
The minutes from the last FOMC meeting revealed that policy makers are heading towards another round of quantitative easing next year. Retail sales report shows that the job claims did not translate to spending in October. The headline consumer spending figure came in at -0.3% and fell short of the market’s forecast of a 0.1% growth.
More economic data today from the dollar is the CPI report to be released at 1:30 GMT with both the core and headline data readings seen at 0.1%. In addition the unemployment claims and the empire state manufacturing index are also due.