Mervyn King Predicts Smaller Growth

15 November, 2012

There was some quite positive news for sterling yesterday, as statistics showed that unemployment fell by 49,000 to 2.51 million in the three months to September, taking the jobless rate to 7.8% from 7.9%, with a drop in youth unemployment being the primary cause. Any major gains for sterling were muted by comments by Bank Of England governor Sir Mervyn King, who announced his belief that the economy will not get back to pre-crisis levels until 2015, two years later than it previously predicted. He also dropped expectation of growth in 2013 to 1%, down from a previous level that was close to 2%. This fits in with a worldwide pattern as investors around the world lowered their expectations for the global recovery. Sir Mervyn was, however, positive about UK employment data, and sterling managed to make small gains against the euro as a result.

The Eurozone has been struck with fresh anti-austerity protests in 23 countries. The more violent of these protests in Spain and Portugal are continuing to add to investors’ concerns about the Euro, as not only do they show the public’s dissatisfaction with the government’s attempts to restore the economy, but they also force businesses and airports to close, resulting in local economies losing business. Unless Eurozone governments can come up with a solution that pacify the protestors, these riots are likely to affect the euro in a negative way. However, this would almost certainly involve stopping austerity, which is seen as the only way of ending the crisis.

As a demonstration of the recently re-elected President Obama’s concerns for the next four years, the US deficit increased 22% from a year earlier to $120bn. In response, Mr Obama has reiterated his call for high earners in the US to pay more in taxes, one of his key election platforms. He realises measures have to be taken quickly before the US slides over the ‘fiscal cliff’ at the end of January, which would almost certainly result in the US economy entering recession. However, Mr Obama’s resolve in at least trying to solve the financial situation caused the value of the dollar to rise slightly against both sterling and the euro.

As we start reaching the end of the year, we might be able to hope for some calm in the markets. However, as we’ve seen in past years, this rarely happens. If you have any transfers to make before Christmas, make sure you call Currency Index to see how we can assist.