Growth, What Growth?

The delayed train journey in to work this morning didn’t deprive me of any unwanted surprises. UK GDP showed the economy had slowed once again. However, train signaling problems gave me the chance to read an article which belittled our current coalition government. The writer blamed a rise in taxes on higher earners and national insurance. “52 percent” is now the top end tax bracket! City firms have been long since criticized for their huge earnings and meanwhile an education system has been set up that leaves millions without access to it. And the list goes on… and it was a long list. Whilst it is for you to debate whether the writer was indeed correct in his accusations, he did highlight a fair number of issues. The facts are, UK growth is nowhere to be seen and the weak pound is doing very little to help us.

Pound Sterling – UK Markets

Sterling fell to a 2 –week low versus the euro as reports showed the UK economy grew by a mere 0.2 percent in the three months up to the 30th June. This was partly due to the extra bank holiday in April. However, whilst growth is near static, Chancellor George Osborne stated that on a positive front, there is still ‘growth’ and the economy is continuing to create jobs. He also said that whilst global markets were in a period of instability, the UK was being seen as a safe haven. Sterling faces a tough year ahead, especially with the government keen on keeping our currency weak in an attempt to aid exporters. Many experts have criticised the coalition stating that current methods are flawed and are now calling for change. Shadow chancellor Ed Balls has since called for a reversal in the VAT rise that took effect at the beginning of the year.

US Dollar – US Markets

Broken record was the story of the day yesterday with regards to our dear Mervyn King. On the US, I feel like I am beginning to follow suit. US President Barack Obama branded the republicans as “reckless” over their continued refusal to raise the debt ceiling. Meanwhile, Republican John Boehner responded by stating the President was asking for a “blank cheque”. The only known truth in the matter is that the continual bickering is sending the markets into a tailspin. The effects have been widespread as Italy saw debt yields rise by 5.6 percent, German gilts widened and Spanish yields jumped by a whopping 6 percent. With regards to a resolution, the future has now been plunged into the realms of uncertainty and the International Monetary Fund is calling for a swift decision. In response to this, the US Dollar has been a constant decline and hit a record low versus the Swiss Franc.

Euro – European Markets

Even in the calm after the storm of the last few weeks, economists are continuing to lose faith in the ever fragile Eurozone. Investors and ratings agencies are some of the few that are maintaining their view that Athens is insolvent. Experts continue to believe that it is only a matter of time before Greece defaults on its debts, but claim it is now a case of how orderly the default is. Greek debt remains worryingly high and levels are expected to remain at around 150 percent of GDP.

Other Currencies – Highlights

Asian currencies have been the first to benefit from the continuing US debt crisis. Central banks are expected to raise interest rates to combat inflation. Whilst there is worry in Asia about the US situation, they expect the ciris to be resolved before the August 2nd deadline. The Australian and New Zealand Dollar followed suit, advancing as investors sought alternatives to the US Dollar. The Australian Dollar reached its highest level against the greenback in more than 2 months before a report tomorrow is set to show that the nations consumer price index rose in the second quarter.