Are There Better Times Ahead For The UK?

This week’s quote is from Sam Walton, founder of Walmart (monthly sales approx $49 billion)

“If everybody is doing it one way, there’s a good chance you can find your niche by going exactly in the opposite direction”.

What’s In The News?

Yet another sign that the UK economy is performing better than the experts warned just a few months ago. The GfK consumer confidence measure in the UK, posted a third consecutive monthly gain in April, reaching its highest level since February 2022. Consumers were more optimistic both about their own finances and the general economic situation.

Heading into 2023, the Bank of England (BoE) was forecasting one of the longest recessions on record. Driven by consumers cutting back on household spending in response to the cost-of-living crunch.

Now, neither the BoE nor the Office for Budget Responsibility (OBR) thinks the country will slip into recession.

Public sector pay across the UK has increased by the largest amount since 2005. Barring the pandemic according to the Office for National Statistics (ONS). At the same time 348,000 working days were lost to strike action in February, up from 210,000 in January.

The ONS also reported that the unemployment rate increased in the last month by 0.1% to 3.8%.

In contrast, the unemployment rate in the US is better at 3.5%. Whereas Canada (5%), Germany (5.6%), France (7.2%), Italy (8%) and Spain (12.9%) are all doing worse.

North of the border, the political crisis is deepening. After the arrest of Peter Murrell, husband of former Scottish First Minister Nicola Sturgeon by Police investigating SNP financing irregularities. Colin Beattie, the SNP’s Treasurer has also been taken into custody.

In March, the UK joined the CPTPP (The Comprehensive and Progressive Agreement for Trans-Pacific Partnership). A free trade agreement area with a bigger population than the EU. 500m people and responsible for a GDP of ￡9 trillion (13% of world GDP) and 15% of all global trade.

There’s plenty of news headlines on the lack of progress with the UK and Biden White House on a post-Brexit UK/USA trade agreement. Instead the UK seems to be working on a state-by-state basis, now having signed four agreements. The latest with Oklahoma. An economy bigger than eleven of the EU-27 countries having previously signed state agreements with Indiana, North and South Carolina.

Last week the UK inflation figures came out showing a smaller decline than forecast. 10.4% to 10.1%, down from the 41-year high figure of 11.1% in October 2022. Analysts expected the CPI rate of inflation to have dropped to 9.8%. The key driver to the stubbornly high rate of inflation?

A 19.2% annual rise in the cost of food and non-alcoholic drink, the biggest increase in 45-years.

Strange as the UN’s Food and Agriculture Index shows twelve successive months of falling global food prices.

Scant consolation that this is not an isolated problem in the UK with retail food price inflation in Germany currently over 20%.

A US Senate Committee finally published its full 304-page report. After 18 months of extensive research and analysis into claims that Covid leaked from a lab in Wuhan, China.

The committee concludes that “The preponderance of circumstantial evidence supports an unintentional research-related incident.” It even appears that China had begun making not one but two?Covid vaccines ?before it even admitted to the world there was a dangerous virus running rampant through the country.

Data from Germany shows the country suffering from the worst labour shortage in the whole of the EU with 40% of firms complaining about a lack of qualified staff, twice as many as in France and nearly three times the level in Spain and Italy. Furthermore, a Manpower Group survey showed that 86% of German companies have difficulty in filling vacancies, the second highest figure in the world behind Taiwan.

India has overtaken China as the world’s?most populous country , the first time it has topped the UN list of most populous country since it started collecting population data in 1950.

And finally, Estonian authorities have charged six former Danske Bank officials for their alleged role in one of the biggest?money-laundering scandals ?in history. It’s alleged that more than USD $220 billion in suspicious payments was funnelled through Danske Bank’s Estonian division between 2007 and 2015. The majority of the illicit funds are believed to have come from Russia. The scandal came to light in 2017.

Currency Exchange Rate Update

The Pound Sterling was the best performing major currency of the first quarter of 2023.

Coming into the last trading week of April, the Pound has been largely rangebound against its major competitors. However it fell sharply on Friday after the Deputy Prime Minister Dominic Rabb resigned. Ending the week trading at a one-week low against the Euro and trading at the 70% 1-month trading line against the US Dollar but for how long?

Patrick Locke, Global FX Strategist at J.P. Morgan said “Markets are still pricing the pound as an underperformer, and we think that should continue” whilst Nomura are?forecasting ?the Pound Sterling will hit USD $1.30 this year and $1.40 in in 2024.

The last week of April and start of May should be lively with the latest interest rate announcements due. US Federal Reserve May 3rd, the ECB (European Central Bank) May 4th and the (BoE) May 11th.

The Pound last hit these figures back in April 2022 and June 2021 respectively.

Most analysts anticipated that the Bank of England would increase UK interest rates for the twelfth consecutive meeting by a margin of 0.25% to 4.5% in May, followed by a leveling off of the base rates before another cut, either in Q4 2023 or Q1 2024, prior to the release of the latest inflation figures.

Now a sizeable minority of analysts are expecting UK interest rates to peak at 5%.

May 4th sees the last big UK political test before the next General election with nationwide local elections taking place.

Politics aside, it’s a well-known fact that the financial markets hate political instability above all else. So expect a difficult end to April and a volatile start to May for the Pound Sterling.

THE COSMOS OFFER

Of course, currency?market volatility can bring trouble but with careful monitoring can also bring opportunity.

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