GBP News

GBP/USD weekly outlook: December 23 - 27

Monday, December 23

The U.S. is to produce government data on personal spending and expenditure, while the University of Michigan is to release revised data on consumer sentiment and inflation expectations.

Tuesday, December 24

The U.K. is to release industry data on mortgage approvals, an important indicator of demand in the housing market.

The U.S. is to release data on durable goods orders, a leading indicator of production, as well as a report on new home sales.

Wednesday, December 25

Markets in the U.K. and the U.S. will remain closed for the Christmas Day holiday.

Thursday, December 26

Markets in the U.K. will remain closed in observance of Boxing Day.

Meanwhile, the U.S. is to release weekly data on initial jobless claims.

Friday, December 27

The U.S. is to round up the week with a report on crude oil supplies.

The average asking price for a house in the United Kingdom was up 0.5 percent in December compared to the previous month, property tracking website Hometrack said on Monday - after gaining 0.5 percent in November.

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The British government should cut spending by another GBP 25 billion over two years after the 2015 general election, Chancellor George Osborne said in a speech in Birmingham on Monday.

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Shop prices in the United Kingdom dropped 0.8 percent on year in December, the British Retail Consortium said on Wednesday - falling for the eighth consecutive month.

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British industrial output remained flat in November and construction output logged the sharpest decline so far in 2013, confounding recent survey data that underscored robust activity in the fourth quarter. Industrial production remained unchanged in November compared with the previous month, the latest figures from the Office for National Statistics showed Friday.

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UK Economic Recovery Survey

(Reuters) - Britain's financial services industry is beginning to feel the benefits of economic recovery, as firms report growth in profits, business volumes and optimism in the fourth quarter, according to a survey.

Some 69 percent of firms said they felt more optimistic about the overall business situation versus just 1 percent who felt less optimistic, the quarterly CBI/PwC financial services survey showed on Monday.

The positive balance of 68 percent was the highest since the survey began in 1989.

The survey is based on the balance of firms reporting an increase and those reporting a decrease.

The survey, covering the three months to December of last year, also showed a net 46 percent of firms saw greater business volumes, the best total since June 2007.

Stronger volumes offset a sharp rise in total costs to deliver the fifth consecutive quarter of profit growth, according to the research by the Confederation of British Industry (CBI) lobby group and accounting firm PwC.

Both business volumes and profitability were expected to increase again in the next quarter, the figures showed.

"All the key indicators - optimism, business volumes and profitability - are up. But it's particularly encouraging to see longer term confidence indicators like marketing spend, employment and investment spend also rising strongly," said Matthew Fell, Director for Competitive Markets at the CBI.

Greater confidence has translated into rising headcount, with the survey showing employment growing at its fastest pace since 2007.

The survey authors predict job growth in the first quarter of 2014 will be the strongest since the survey began.

Jobs are expected to increase by 15,000, taking total employment in the sector to 1.16 million, just 52,000 lower than at the end of 2008 when the financial crisis took hold, according to their calculations.

"Things are starting to look more 'normal' after five years of volatility," Fell said.

The changing environment has also altered what businesses see as the main constraints facing them over the next year. Firms are now less concerned about demand and the impact of new regulations and more mindful of skills shortages, systems capacity and increasing competition, the figures show.

A total of 87 banks and other financial firms were questioned as part of the research.

As the U.K. economic recovery takes root, it is beginning to feed through to the financial services sector, survey data from the Confederation of British Industry and PricewaterhouseCoopers showed Monday.

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UK Unemployment Drops To 7.1% - Bloomberg

U.K. unemployment fell more than economists forecast to the lowest in almost five years, putting it within touching distance of the 7 percent threshold at which Bank of England officials say they will review borrowing costs.

The unemployment rate measured by International Labour Organization methods declined to 7.1 percent in the three months through November from 7.4 percent in the quarter through October, the Office for National Statistics said in London today. The median forecast of 33 economists was for a decline to 7.3 percent. In December, jobless claims fell 24,000, less than economists had forecast.

The data will add pressure on BOE Governor Mark Carney to reassess his guidance policy, under which the Monetary Policy Committee has said it will consider raising interest rates once joblessness has fallen to 7 percent. With that threshold approaching faster than officials had anticipated, economists say the central bank will refine the flagship policy when it publishes its quarterly Inflation Report on Feb. 12.

“Extended improved economic activity and stronger business confidence have fed through to cause substantial improvement in the labour market in recent months,” Howard Archer, an economist at IHS Global Insight in London, said before the data were released. “We expect the unemployment rate to get down to 7 percent in the second quarter of 2014.”

BOE Guidance

BOE policy makers said they see no need to raise interest rates soon even as they forecast that unemployment will fall to their threshold “materially earlier” than anticipated. The MPC “saw no immediate need to raise bank rate even if the 7 percent unemployment threshold were to be reached in the near future,” it said in the minutes of its Jan. 8-9 meeting, published today.

The pound rose against the dollar after the reports and was trading at $1.6517 as of 9:34 a.m. London time, up 0.2 percent on the day. The 10-year gilt yield rose 4 basis points to 2.87 percent.

Claims Down

The unemployment drop left the ILO jobless rate at its lowest since the first quarter of 2009. Unemployment fell by 167,000 to 2.32 million people in the three months through November compared with the quarter through October, today’s report showed. That’s the biggest drop since October 1997 and the second largest since records began in 1971.

December’s fall in jobless claims, the 14th in a row, compared with the median forecast of 28 economists in a Bloomberg News Survey for a drop of 32,000. In November, jobless claims declined 34,300 instead of the 36,700 drop initially estimated. The claimant-count rate fell to 3.7 percent in December from 3.8 percent in November.

The number of people in work climbed 280,000 to 30.2 million in the quarter through November. Both were records, the ONS said.

Almost one third of economists in a Bloomberg survey this month said the U.K. jobless rate will fall to 7 percent in the first half of the year. Sixty-eight percent said the threshold will be reached in 2014.
Policy Change

Of 33 economists who responded to the question on guidance, 20 said the BOE will change the policy next month, when it publishes new forecasts. Of those, nine expect the central bank to lower the unemployment threshold to 6.5 percent, with the same number forecasting a tweak to the BOE’s language to mimic that of the Federal Reserve.

The Fed made refinements to its guidance in December and pledged not to raise the main interest rate until “well past the time” joblessness falls below its threshold of 6.5 percent.

While U.K. inflation slowed to 2 percent in December, hitting the BOE’s target for the first time in more than four years, today’s ONS report showed that it continues to outpace wage growth. Total weekly pay growth in the three months through November was unchanged at 0.9 percent. Wage growth excluding bonuses quickened to 0.9 percent from 0.8 percent through October.
Narrower Deficit

Separately, the ONS said the budget deficit narrowed to 12.1 billion pounds ($20 billion) last month from 14.2 billion a year earlier. Revenue rose 3 percent to a record, driven by stamp duty on property purchases and value-added tax on sales. Government spending fell 2.6 percent. The median forecast of 22 economists in a Bloomberg News survey was a 14 billion-pound deficit.

The deficit in the first nine months of the year was 96.1 billion pounds compared with 100.9 billion pounds a year earlier. Faster-than-expected growth prompted the Office for Budget Responsibility to cut its borrowing forecast for full fiscal year to 111 billion pounds last month, or 6.8 percent of gross domestic product.

The measure that determines how much the government needs to borrow by selling gilts -- the central government net cash requirement -- was 21.9 billion pounds last month, the report showed.

GBPUSD 30min chart shows about 94pips move right after GBP news annnouncement (Claimant Count Change, MPC Asset Purchase Facility Votes, MPC Official Bank Rate Votes, Unemployment Rate) :

The U.K. unemployment rate fell rapidly to the level close to the central bank's 7 percent threshold for an interest rate hike. But policymakers of the Bank of England said there is no immediate need to raise the interest rate, even if the threshold is reached. The jobless rate dropped more-than-expected to 7.1 percent for the September to November period, just a tad above the BoE's threshold.

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Bank of England policymaker Martin Weale said reducing the central bank's unemployment rate threshold of 7 percent to 6.5 percent may not achieve the purpose of forward guidance as that level could also be quickly overtaken by events, a regional British daily reported on Friday.

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