Beyond Currency

The April employment report came in stronger than expected as the number of benefit claimants fell by close to 60k while wages rose although adjusted for inflation disposable incomes are being hit hard.

As consumer prices continue to rise, the headline rate that will be released later this morning is expected to climb above 90%, businesses are being hit by slowing sales and increased costs.

The unemployment rate is at its lowest since 1974 at 3.7%. Basic wages grew by 4.2% and when bonuses are included that figure jumps to 7%.

The Government is certain to jump on this data briefly, concluding that jobs remain plentiful. However, today's inflation data will take the shine off economic performance.

There are fewer people in work than before the Pandemic, and costs are rising appreciably faster than pay.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Despite the imminent departure of its most prominent hawk, the Bank of England will continue to honour the legacy of Michael Saunders by hiking rates even as the economy begins to slide into recession. Forecasts are beginning to point towards a significant recession lasting at least three quarters, with the first quarterly contraction to come either in the second or third quarter.

Tomorrow’s inflation data will confirm the trajectory of price rises towards 10% as the headline rises above 9%.

Data for employment will be released this morning with the claimant count expected to fall again but not by as much as has been seen recently.

Less than 40k workers will have come off the register, while last month it was closer to 50k.

While it is clear that the global economy is suffering post Coronavirus, with many countries in the grip of the virus, it is the UK that seems to be starting to suffer more than other G20 nations.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The UK economy shrank by 0.1% in March as consumers slashed their spending as the price of energy rose. Even though the price cap had not yet been raised.

The data is seen as a prelude to a far bigger fall when data for April is released. Chancellor of the Exchequer Rishi Sunak confirmed that he has always said that he is ready to support households.

While not strictly true, this comment will be welcomed in households across the country that are struggling to pay their bills as the level of disposable income continues to fall. Sunak went on to say that he is not attracted to the idea of windfall taxes on energy companies, since it is generally accepted that all taxes eventually find their way back to the individual.

This was true of a similar tax on banking profits a few years ago which resulted in banks starting to charge fees on almost every service they provide, which reduced the net effectiveness of tax.

MPC member and Deputy Governor Dave Ramsden confirmed yesterday that the Bank of England will be forced to continue to hike rates as CPI risk remains to the upside.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Pressure is building for the Government to act to provide support for those who are suffering from the recent rise in the cost of living.

Earlier this week, the Prime Minister agreed with recent comments from the Chancellor that help with soaring energy bills, in particular, is not possible given the amount of support that was provided in several ways during the Pandemic.

Opposition MPs as well as trade unions and consumer groups are calling for various schemes to be put in place to provide relief to those who, in many cases, are being faced with either warming their homes or putting food on the table for their children.

Boris Johnson has been countering the calls for tangible support by looking into the future and promising that his policies will provide the level of growth that will continue sustainable employment in skilled jobs, while his levelling up agenda remains the mainstay of Government policy.

Although last week’s local elections were extremely poor for the Government, particularly in cities, the message that was delivered during the General Election regarding moving activity to more deprived areas continues to receive support.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Government spelled out its plans for the next year to Parliament yesterday as in the Queen’s absence, Prince Charles, her heir, set out the legislative agenda.

Boris Johnson then had to defend the programme from the inevitable criticism of the opposition parties.

Johnson freely admits that it is almost impossible for the Government to provide additional support to the families who are beginning to suffer from the continued cost of living crisis.

The emphasis of Parliamentary business for the next year will be on creating conditions for the country to be able to grow its way out of the coming slump which could turn into a recession.

Johnson and his Chancellor Rishi Sunak firmly believe that despite the current conditions with interest rates rising and energy bills soaring, that promoting growth which in turn will lead to the generation of jobs is the way to deal with the cost-of-living crisis.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Michael Saunders has built a reputation during his time as a member of the Bank of England’s Monetary Policy Committee for being particularly hawkish about tackling inflation.

He was something of a lone voice last summer when he voiced his concern over rising inflation. At that time, he was considered to be akin to the boy who cried wolf given the expectations being promoted around growth.

He was the first to spot the effect that rising energy prices would have on inflation and how emergence from the pandemic may unbalance the economy.

Yesterday, Saunders spoke of his continued concerns over rising inflation and how he believes that the country is not prepared for it to become embedded in the national psyche, a phenomenon that has been absent for close to forty years.

Historically, Inflation is seen as a by-product of wage demands made by militant trade unionists prior to the Thatcher years but the reality of today’s economy is vastly different.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Bank of England has admitted that there is a recession on the way in the UK as output continues to falter and inflation hits all areas of the economy.

Families are facing an uncertain time as they prepare for a further increase in the energy cap in the Autumn. The Central bank had been clinging to the hope that inflation could be continued, but Andrew Bailey’s acceptance that it could reach double figures in the coming months has introduced a sense of realism that had been sadly lacking recently.

With MPC members still using theoretical examples to explain their view on the economy, the need for action has not been more pressing since the 1970s.

Following the bank’s unanimous vote to hike rates to 1%, there were two warnings that sent a chill through financial markets.

They are better described as predictions rather than warnings. As recently as February, the bank’s economists were saying the inflation could reach 7% by the spring. Their prediction now is for prices to see a 10% increase year-on-year.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Bank of England raised interest rates for the fourth consecutive time at its meeting which concluded yesterday.

The base rate now stands at one per cent, its highest level since 2009.

Bank of England Governor Andrew Bailey spoke in his post meeting press conference of his belief that inflation will reach a peak of 10% in the summer.

Bailey also warned of a major slowdown in the economy, made worse by the continued conflict in Ukraine and the prospect of further rises in the price of energy as the cap is raised further in the Autumn.

Bailey believes that there is a narrow path to be negotiated between high and rising inflation and a potential recession. Most observers will see that path narrowing almost by the day. The continued effect of lockdowns in China on supply chains is also a contributing factor to the slowing economy.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Prime Minister Boris Johnson admitted yesterday that being able to help the population deal with the rise of the cost of living is beyond the capabilities of the Government.

Johnson refused to consider a windfall tax on energy companies who are making record profits as the cost of both petrol and gas go through the roof.

BP made a record profit of £6 billion in the first quarter. This has further stoked public indignation amid accusations of profiteering.

In an interview yesterday, Johnson went on to say that using public funds to try to offset the increase in energy prices would be impossible given the size and scale of the problem.

The cap on energy prices was raised on April 1st and already the level of those either already in arrears or being forced to make compromises in other areas of the household budget is already rising exponentially.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

It is still almost certain that the Bank of England’s Monetary Policy Committee will agree to a fourth hike in the current cycle to curb the rise in inflation when it meets this week. This is despite further warnings of an approaching recession from the institute of Directors.

The cost-of-living crisis is leading to crumbling consumer confidence which, in turn, is hitting retail sales, while uncertainty caused by the conflict in Ukraine is affecting the availability of several products in stores.

The Institute's own measure of economic confidence plummeted from -4 to -36 in the most recent period. This is in measure of the IoD’s members investment intentions over the next year.

One of the major factors in the lead up to any recession in the UK since the 1970s has been a significant fall in the level of business investment as Directors switch from expansive to protective mode.

At this week’s meeting, it is likely that the Bank’s Governor Andrew Bailey will move to dampen market concerns over the level that rates will eventually reach.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.