Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (29726)	5/10/2005 10:00:33 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Pound on the slide as economic jitters mount Tuesday, May 10, 2005 8:37:31 AM afxpress.com ----by Pan Pylas---- LONDON (AFX) - The rug appears to have been pulled from under the pound as concerns of a sharp UK economic slowdown mount in the wake of disappointing economic news The latest bout of jitters on the currency markets have been generated by a succession of weak economic data, in particular last night's news of a spring slump in consumer spending While the British Retail Consortium reported that sales volumes in April fell by 4.7 pct on a like-for-like basis compared with a year, the steepest fall in ten years, official manufacturing data yesterday showed output slumping 1.6 pct in March, pushing production down below the level the Labour government inherited when it took power in May 1997 "The data continues to show the economy is slowing very rapidly and it is looking very much like the pound has hit a brick wall," said Ian Stannard, currency strategist at BNP Paribas In the space of two trading sessions sterling has dropped from around the 1.90 usd mark to 1.8780, its lowest level in a month, while the euro has perked up above the 0.68 stg despite the euro zone's own economic gloom Analysts have warned that the sharp deterioration in the output data recently for both consumption and manufacturing has left the Bank of England, which yesterday held its key repo rate at 4.75 pct for the ninth month running, in a very tricky situation Under normal circumstances, policy-makers could easily respond to the economic malaise by cutting the cost of borrowing but that option looks increasingly difficult given mounting inflationary pressures in the economy. After all, its over-riding policy task is to target inflation two years out Mark Richards, economist at Lombard Street Research, conceded that the Bank of England has more "monetary ammunition" to cope with the consequences of a weakening global economy and is better positioned to give the domestic economy a boost "However, the consequences of repeatedly boosting the economy in the face of external adversity cannot repeated ad infinitum," he said Those inflation concerns were evident yesterday, when the office of National Statistics reported that the rapid rise in manufacturers's fuel and raw material costs are beginning to feed through into the price of goods leaving the factory gates While input costs in April rose by 10 pct on a year-on-year basis, the annual rise in output prices has risen to 3.2 pct from 2.8 pct "This low growth and high inflation environment is not the best currency mix for a currency and the pound is looking increasingly vulnerable in this environment," said BNP's Stannard Meanwhile, the uncertainty generated by the outcome of the UK general election may cause the pound some problems ahead, analysts said. "The tussle between the supporters of (Prime Minister) Tony Blair and (Chancellor of the Exchequer) Gordon Brown has injected an element of uncertainty as far as the pound is concerned," said ECU Group's chief economist Neil Mackinnon. Blair has said he will not stand at the next general election and will quit just before his term runs out. Others in the Labour Party, who blame Blair for Labour's loss of over 40 seats, want him out sooner in favour of Brown, and one has even said he may stand as a stalking-horse against the Prime Minister