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February 2016

UK growth slow but still healthy

Published: Friday 26 February 2016

  • UK growth slow but still healthy
  • US growth and spending data due this afternoon
  • EU exit set to dominate news for months
Can I apologise now for the fact that I will almost not be able to write a report over the next 4 months without mentioning Britain's potential exit from the EU. It will undoubtedly be the dominant factor in the value of the Pound and will absorb gazillions of column inches in all websites, newspapers and reports like this. In fact the word Brexit has become to financial markets what the words 'Climate Change' have become to research funding; ubiquitous and a little annoying.
 
Leaving that aside for a moment, British economic growth dropped to an annualised 2.2% last year. That was the slowest since 2012 but still ranks as one of the fastest paces of growth in the industrialised world. Nonetheless, the fears of Brexit still weighed on the poor old Pound and a 2.5% drop in exports during Q4 highlighted the threats Britain faces from slow overseas demand. In spite of this data, Sterling did regain a little strength against the likes of the Euro, USD and Aussie Dollar but it was still being battered by other currencies.
 
Today the markets turn their attentions to the US economic growth data for the last three months of 2015, which is likely to be downgraded from the first estimate. The Dollar, as we all know, has been riding the wave of its safe haven status while oil and commodity prices dive, economies slow and global demand does likewise. We will also get personal income and expenditure data for US consumers and that is expected to reflect an improvement in the propensity to spend. The University of Michigan consumer sentiment index is also expected to be a tad elevated. The Federal Reserve will be relieved if that is so; it would make their December interest rate hike look a little less premature. We all know it was too soon though. Just sayin'.
 
And that, as they say, is when the fat lady sings to end the week. A week in which the Pound was mauled by the prospect of a UK exit from the EU, in which views were expressed on the subject that served the speaker far more than the listener and a week in which Mr Simon Smith; fuelled by some alcohol we believe, changed his name by deed poll to 'Mr Bacon Double Cheeseburger'. And what does Mr Cheeseburger do for a living? Nope, I knew you'd go for the obvious answer but he doesn't work in McDonalds. He works in the oil and gas industry. I think drinking is not a good idea for him.
 

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A man arrives at the vet's surgery and says, "You see my Saint Bernard there. I want you to cut off his tail."
 
The vet says, "We don't doc tails any more. It's against the law and anyway, why would you want to do that to a beautiful dog like him?"
 
"Well," says the man. "My mother-in-law is coming this weekend and I don't want anything to make her think she's welcome."


FX Research by David Johnson

Daily Currency Analysis with Richard Smith



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