Dollar Continues to Climb
Bean Warns of Recession
Charles Bean, deputy Governor of the Bank of England yesterday warned of an economic period at “least as challenging” as the 1970's facing the UK.
The warning comes after statistics for the second quarter show growth grinding to a halt as businesses and individuals cut spending due to rising inflation. More than a year on from the initial credit crunch, Britain's annual growth rate has slowed to 1.4%, the weakest rate since 1992.
It is the simultaneous rise in commodity prices that have prompted Bean's comparison to the oil shocks of the 1970's. Describing the coming year as a "transitory period of subdued growth" Bean and the Bank still hold out hopes of avoiding a full blown recession, with conditions forecast to improve over the coming year.
Service Industry Suffers
Reuters reports that “profitability and optimism” in the service sector have rapidly deteriorated in the three months to August, imitating a pattern of decline seen in the manufacturing and construction industries.
The Confederation of British Industry reports confidence and profitability fell in the second quarter at the fastest rate in six and a half years, adding to the mounting evidence of recession and increasing likelihood of interest rate cuts later in the year.
In the currency markets, the Euro-Dollar exchange rate slid to a one week low, dropping to 1.4671 this morning. News that the German economy contracted by 0.5% in the second quarter fuelled the dip and the Euro remains in the vicinity of 1.463 rate, a 6 monthly low.
The Pound also slid against the Dollar to1.8410 with currency analysts claiming commodity prices potentially provide the clue to the Dollar's performance. Market evidence suggests low and stable oil leads to a strong US Dollar, an inversion of historical correlations in which the Dollar has led the oil price.
The South African Rand also dipped against the Dollar yesterday with a drop in commodity prices worrying analysts, as commodities form the backbone of the South African economy.