A better-than-expected November jobs report put the Pound on the front foot on Tuesday
A better-than-expected November jobs report put the Pound on the front foot on Tuesday, with it climbing alongside some stock markets and other risk assets, although the global market picture was mixed.
Sterling got back to the 2 year peak against the dollar and to near the 9 month peak against the Euro as appetite for UK government debt supports the Pound. The so far successful Vaccine roll out seems to be the main reason for the renewed confidence in the Pound with 6.8 million people so far receiving their first dose. Whilst this is positive news there is still a lingering negative backdrop for the UK economy.
Britain’s unemployment rate stood at 5% in November, up from 4.9% in October but less than the 5.1% markets were looking for and yesterday the International Monetary Fund downgraded forecasts for the UK’s recovery this year but also noted the global economic recovery will gather pace, aided by accelerating vaccine roll outs. The IMF said in its latest forecast that the UK’s GDP, would expand by 4.5% this year, down 1.4% from the 5.9% growth forecast made last October.
It follows an estimated contraction in UK GDP of 10% in 2020, the biggest fall of any G7 country. The global economy, helped in part by improved outlooks in the US and Japan, that will recover from a 3.5% fall in GDP in 2020 with growth of 5.5% in 2021, up 0.3% compared to October’s forecast.
The US economy is forecast to grow by 5.1% in 2021, while Japan’s economy is expected to expand by 3.1%. GDP in the eurozone is forecast to rise by 4.2% this year. The IMF also stated the UK’s acceleration of its vaccination programme is not expected to give an extra boost to UK growth until 2022 when its growth rate is upgraded by 1.8 percentage points to 5%.
Concerns that inflation is likely to take off over the next 12 months as the recovery gains speed were also dispelled by the IMF, which said average prices would not increase by more than 1.5% over the two-year forecast period.
In a further blow to the UK chances of signing a swift UK/US trade deal also appeared to be further away after President Joe Biden’s nominee for Treasury Secretary, Janet Yellen, made clear the president had other more pressing domestic economic priorities than international trade deals. This indicates that the UK will have to be patient whilst the new president focuses on the US economy and dealing with the Covid Pandemic sweeping the country.
The UK death toll from Covid reached a grim milestone of over 100,000 deaths yesterday as a further 1631 deaths were recorded and 20,089 cases reported.
AUD-CPI Q/Q released 12.30am Forecast -0.7% Actual -0.9%
FOMC Statement & Rate decision 7pm Forecast- 0.25%
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