United Kingdom Country Profile - Economy, Currency, Central Bank, Canadian Dollar, CAD

Introduction

The United Kingdom is the 5th largest economy in the world, with a GDP of $2.398 trillion, and a population of 60 million. The economy has experienced positive growth in every quarter since 1992, and the central bank in '06 - '07 hiked interest rates to 5.75% to stem an increase in inflation. London is the world's largest financial center, with the UK having £21bn of financial exports in 2005. Manufacturing accounts for 16% of national output and 13% of employment. UK property markets have been booming for the last seven years, but have recently shown signs of straining as interest rates climbed and financial markets were hit with a credit crunch in August '07.

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United Kingdom's Fundamental Indicators and Chart

Monthly Data for January, 2009

Date	EST	Indicator	Actual	Forecast	Previous
1/2	4:30am	House Prices m/m (Halifax Bank of Scotland)	-2.2%	-1.6%	-2.7% -2.6%
		For December Provided by: Halifax Bank Of Scotland Official Release: PDF House Prices y/y: -16.2%, forecast 16.6%, pr. -14.9% (Nov), -13.7% (Oct), -12.4% (Sep), -10.9% (Aug), -8.8% (Jul), -6.1% (Jun) Avg. Price (s.a.): £159,896, pr. £163,605 (Nov), £168,176 (Oct), £172,108 (Sep), £174,178 (Aug), £177,351 (Jul), £180,344 (Jun) From the Release: "There was a 2.2% decline in average UK house prices in December. Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert further downward pressure on the market over the coming months. But a number of factors will help to support demand and should help to limit the downturn. Improving housing affordability and an easing in the pressure on the majority of households' finances should support market activity and prices. The house price to earnings ratio - a key affordability measure - is at its lowest for five and a half years."
1/2	4:30am	Manufacturing PMI	34.9	33.5	34.5 34.4
		For December Provided by: Chartered Institute of Purchasing and Supply (CIPS) (subcr. req') The index of activity in the UK manufacturing sector, saw a slight increase to 34.9 from November's record low of 34.5, though any figure below 50 implies contraction. It was the eight month in a row that the sector shrank, and reflects the difficulties facing factories as retails cut back on orders in the face of weaker demand from both at home and abroad. The production, new orders and employment sub-gauges remain near survey-record lows as the ongoing crisis in the auto, construction, financial and retail markets drain demand. Key UK trading partners like the Euro-zone and US are also facing recessions and even though the Pound has depreciated making UK goods cheaper abroad, the fall in demand from abroad has wiped out that advantage. Still, today's data beat forecasts of a further drop in the index which may imply that the rate of contraction may be slowing. Europe's report showed manufacturing continue to sink to lower levels. The Bank of England meets next week and expectations are for a 50 basis point cut in order to stimulate the economy.
1/2	4:30am	Mortgage Approvals (BOE)	27K	33K	31K 32K
		For November Provided by: Bank of England Official Release: HTML PDF Net Mortg. Lend.: £0.7B, pr. £0.5B (Oct), £1.5B (Sep), -£0.7B (Aug), £3.2B (Jul), £3.1B(Jun), £4.1B (May), £6.4B (Apr) UK mortgage approvals fell to the lowest level since at least 1999 in November, house prices fell by the most in a quarter-century last year, and banks are expected to continue limiting how much they lend in the new year. Lenders granted 27,000 loans for house purchases, about 4K lower than in the previous month. The figure was below expectations and continues to show the woes facing the UK housing sector. Not only are there fewer potential buyers as households see their wealth decline in the face of worsening economic conditions and a sharp slide in equities in 2008, but those that do want to buy a house are facing stiff requirements from banks which are reluctant to lend. From the Release: "The increase in net lending secured on dwellings (£0.7 billion) was higher than the October increase, but below the previous six-month average (Table A). The twelve-month growth rate slowed further, to 3.9%. The three-month annualised growth rate ticked up by 0.2 percentage points to 0.9%. The numbers of loans approved for house purchase (27,000), remortgaging (42,000) and for other purposes (32,000) were all lower than in October and lower than their previous six-month average, (Table B)."
1/2	4:30am	Net Consumer Lending	1.5B	1.1B	1.3B
		For November Provided by: Bank of England Official Release: HTML PDF Net Consumer Credit: £0.8B, forecast £0.6B, pr. £0.8B, pr. £0.3B (Sep), £1.1B (Aug), £1.1B (Jul), £0.9B (Jun), £1.4B (May), £0.9B (Apr) Net Mortg. Lend.: £0.7B, forecast £0.5B, pr. £0.5B (Oct), £1.5B (Sep), -£0.7B (Aug), £3.2B (Jul), £3.1B(Jun), £4.1B (May), £6.4B (Apr) From the Release: "The increase in total net lending to individuals in November (£1.5 billion) was higher than the October increase, but below the previous six-month average (Table A). The twelve-month growth rate slowed further, to 4.1%, and the three-month annualised growth rate ticked up by 0.1 percentage points to 1.3%. Within the total, the increase in net lending secured on dwellings (£0.7 billion) was higher than the October increase, but below the previous six-month average (Table A). The twelve-month growth rate slowed further, to 3.9%. The three-month annualised growth rate ticked up by 0.2 percentage points to 0.9%. The numbers of loans approved for house purchase (27,000), remortgaging (42,000) and for other purposes (32,000) were all lower than in October and lower than their previous six-month average, (Table B). The increase in net consumer credit in November (£0.8 billion) was in line with the October increase, but below the previous six‑month average (Table A). Net credit card lending and net other loans and advances each rose by £0.4 billion, both in line with their October increase. The annual growth rate of consumer credit continued to slow, to 5.2%; the three-month annualised growth rate slowed by 0.4 percentage points, to 3.2%."
1/5	12:00am	Consumer Confidence	47	47	51
		For December From the Nationwide
1/5	4:30am	Construction PMI	29.3	30.5	31.8
		For December Provided by: Chartered Institute of Purchasing and Supply (CIPS) (sub. req'd) In the UK, the construction PMI fell to 29.3, reflecting a deepening of the contraction in that sector. With the housing market reeling in the UK, the construction industry has gone into hibernation.
1/5	7:01pm	Consumer Confidence Index (NCCI)	47	47	51 50
		For December (s.a.) Provided by: Nationwide Official Release: PDF Current Conditions: 28, pr. 30 (Nov), 36 (Oct), 40 (Sep), 47 (Aug), 50 (Jul) Expectations Index: 60, pr. 64 (Nov), 71 (Oct), 62 (Sep), 62 (Aug), 59 (Jul) Spending Index: 82, pr. 66 (Nov), 58 (Oct), 56 (Sep), 56 (Aug), 57 (Jul) Consumer confidence in the UK fell to the lowest level since 1999 when Nationwide began its survey. Though the spending index increased, consumers evaluation of their present and future conditions fell again this month. Consumer spending was down the most since 1995 in the third quarter, and GDP data for the 4th quarter is expected to be worse. From the Release: "The last consumer confidence report of 2008 shows that confidence fell further from 51 to 47 during December. Confidence in the labour market continues to dominate the overall index and news of troubled retailers and redundancies in the motor industry are likely to have affected sentiment during the month. Despite this, the Spending Index rose sharply during December suggesting that consumers believe that now is a good time to buy household items such as white and brown goods (for example, fridges and televisions etc). A flurry of pre-Christmas discounting seems to have improved confidence. However, recognizing that now is a good time to buy may not always indicate a willingness to part with hard cash."
1/6	2:00am	Nationwide House Prices m/m	-2.5%	-1.5%	-0.4%
		For December Provided by: Nationwide House Prices Official Release: PDF House Prices y/y: -15.9%, forecast -14.7%, pr. -13.9% (Nov), -14.6% (Oct), -12.4% (Sep), -10.5% (Aug), -8.1% (Jul), -6.3% (Jun) Avg. Price: £153,048, pr. £158,442 (Nov), £158,872 (Oct), £161,797 (Sep), £164,654 (Aug), £169,316 (Jul), £172,415 (Jun) UK housing prices fell at a record rate in December, at least for this series which goes back to 1991. Prices plunged 2.5%, a sharper decline that was anticipated and follows a more tepid decline in November. The Bank of England meets this week and will continue to cut interest rates in order to stimulate the struggling British economy. Rates are now at 2%, but the drop in borrowing costs hasn't filtered down into an improvement in the housing sector. Mortgage approvals fell to their weakest level since at least 1999 in November and with banks continuing to suffer, they are more reluctant to lend. The British government will try to expand its program where it takes some of banks illiquid assets and trades it for government debt thereby pumping money into banks and spurring lending. From the Release: "The price of a typical house fell by 2.5% in December, a stark contrast with the modest fall of 0.4% in November. This brings the annual rate of fall over the last twelve months to 15.9%. However the three-month on three-month rate, which smoothes the volatility often seen in the monthly numbers, shows a fall of only 4.2% in December. This is its slowest pace since May 2008. The price of a typical house is now £153,048, around the same level as of spring 2005, but still over £17,500 more than five years ago. 2008 has been a year of turmoil in the UK housing market. The disruption in the financial markets worsened throughout 2008 and had larger implications for the real economy than we anticipated a year ago. This time last year we expected the housing market to cool quickly as affordability was poor and economic conditions looked set to weaken, but we did not anticipate the speed of house price falls or the extent of the global and domestic economic slowdown. While we underestimated the speed and size of the fall, with the benefit of hindsight, the path of prices in 2008 is understandable. Three main factors have been behind the sharp fall in prices: credit conditions, expectations and affordability."
1/6	4:30am	Services PMI	40.2	39.0	40.1
		For December Provided by: Chartered Institute of Purchasing and Supply (sub'n req'd) UK services contracted at close to the fastest pace in at least a dozen years as the PMI index edged up just slightly to 40.2 in December from 40.1 in November. Levels below 50 indicate contraction. In a silver lining to the data, expectations were for an deeper contraction in the sector, so though its too early to tell, the data may suggest the pace of decline may have stabilized. That would be the first sign of a bottom. Other data today showed housing prices plummeting and consumer confidence hitting a new low, so the UK economy is in no way out of the woods. Expectations are for a 50 to 75 basis point cut from the Bank of England on Thursday.
1/7	5:30am	BRC Shop Price Index y/y			2.7%
		For December Provided by: British Retail Consortium Previous Release: DOC Shop Prices m/m: pr. 0.2% (Nov), -0.1% (Oct), 0.0% (Sep), 0.5% (Aug), 0.1% (Jul)
1/8	7:00am	BOE Interest Rate Statement		1.50%	2.00%
		Provided by: Bank of England Previous Release: Statement
1/9	4:30am	Manufacturing Production		-0.5%	-1.4%
		For November Provided by: Office of National Statistics (ONS) Previous Release: PDF Manufact. Prod. y/y: forecast -5.2%, pr. -4.9% (Oct), -3.1%, (Sep), -2.0% (Aug), -1.4% (Jul), -1.5% (Jun), -0.8% (May), 0.1% (Apr)
1/9	4:30am	Industrial Production		-0.5%	-1.7%
		For November Provided by: Office of National Statistics (ONS) Previous Release: HTML PDF Ind. Prod. y/y: forecast -5.2%, pr. -5.2% (Oct), -2.9% (Sep), -2.3% (Aug), -1.9% (Jul), -1.7% (Jun), -1.6% (May), 0.2% (Apr)
1/9	4:30am	Producer Price Index Output		-0.7%	-0.7%
		For December Provided by Office of National Statistics (ONS) Output y/y: forecast 4.6%, pr. 5.1% (Nov), 6.7% (Oct), 8.5% (Sep), 8.5% (Aug), 10.2% (Jul), 10.8% (Jun) Output Core m/m: forecast -0.3%, pr. 0.2% (Nov), -0.5% (Oct), -0.5% (Sep), -0.1% (Aug), 0.3% (Jul) Output Core y/y: pr. 4.1% (Nov), 4.9% (Oct), 5.5% (Sep), 5.6% (Aug), 6.8% (Jul)
1/9	4:30am	Producer Price Index Input		-2.0%	-3.3%
		For December Provided by: Office of National Statistics Input y/y: forecast 3.0%, pr. 7.5% (Nov), 13.8% (Oct), 24.0% (Sep), 28.8% (Aug), 30.1% (Jul), 30.8% (Jun)
1/9	7:01pm	NIESR GDP Estimate			-1.0%
		For December Provided by: National Institute of Economic and Social Research Previous Release: HTML PDF

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Central Bank Watch - Latest Bank of England Decision

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December
4th, 2008

Actual

Forecast

Revised Form

2.00%

3.00%

N/A

Provided by: Bank of England
Official Release: Statement

The Bank of England met expectations of a 100 basis point cut. The statement said policy makers were not as worried about inflation as weaker domestic demand outweighed any upside risks from a reduction in the banchmark interest rate and the depreciation of the Pound. With growth deteriorating sharply, the BOE moved to slash rates again aggressively, hoping to filter down the lower borrowing costs to consumers and potential home buyers.

From the Release: "The Bank of England’s Monetary Policy Committee today voted to reduce the official Bank Rate paid on commercial bank reserves by 1.0 percentage points to 2.0%.

In the United Kingdom, business surveys have weakened further and suggest that the downturn has gathered pace. Consumer spending and business investment have stalled, while residential investment has continued to fall. Activity indicators in the rest of the world have also weakened, though the further depreciation in sterling should moderate the impact of weaker global growth on the United Kingdom. And a number of fiscal measures to boost near-term demand are in train, both in the United Kingdom and overseas. Despite the actions taken to raise bank capital, ease funding and improve liquidity, conditions in money and credit markets remain extremely difficult. The Committee noted that it was unlikely that a normal volume of lending would be restored without further measures."

Next Release Date: January 08th 2009, 7:00 EST

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Central Bank Watch - Bank Officals' Comments

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November 29 (BOE Governor King) -- Bank of England Governor Mervyn King said today the central bank will offer financial institutions emergency funds to prevent a renewed increase in money-market interest rates from hurting economic growth.

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Economic and Financial Profile

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Credit Crunch Hits UK Economy:

The UK economy saw strong growth recently, and some inflation, prompting the central bank to raise rates from 4.5% to 5.75% from July of 2006 to July 2007. Unemployment is at record lows and the services sector is growing rapidly. The bank was projecting that growth would moderate nicely in 2008, letting the bank raise its rate again in early 2008. Then, on August 9th, the world's financial markets experienced a shortage of credit causing injection of funds into the system. The Bank of England did not intervene until Northern Rock, needed to be bailed out. Other economic news related to losses as a result of the credit crisis have turned the central bank dovish and in their Nov. 14th Inflation Report, it signaled that rates would come down to 5.25% next year.

With the onset of the credit crunch, the housing sector, which had been a strong vehicle of growth in the UK, has begun to wobble. Prices have been falling in several indicators, and higher costs for loans will shrink the potential buyers. Business investment may also take a hit. The UK economy is set to report 2% growth next year after a 3.5% measure projected for 2007.

Carry Trade:

The Pound is used as a destination for carry trade, as its higher yields attract investments which are funded though borrowing money in low interest rate currencies such as the Yen and Swiss Franc. When global stocks are doing well, traders buy the GBP/JPY, when global stocks fall, so does the GBP/JPY. The last two years saw a strong climb of about 52 yen, however Augusts' turmoil in financial markets sent the pair reeling. More recent financial news in November have prompted a second, or third (if you count early '07) round of Pound selling.

This figure is a weekly chart, of the GBP/JPY pair. Prices moving upward favor the strength of the Pound (the top currency in the GBP/JPY quote). When prices move down they favor the Yen (the bottom currency in the pair).