UK Economy set to slowdown

GBP10

Bloomberg.com has reported further slowing of UK economy caused due to tight measures by Cameron government to reduce budget deficit.

Foreign-exchange forecasters are the most pessimistic on the pound since May 2009, when Standard & Poor’s said the U.K. was at risk of losing its AAA credit rating, according to data compiled by Bloomberg. Bears in a Bloomberg survey of strategists outnumber bulls 29 to 12, while TD Securities in Toronto, the most-accurate forecaster in the six quarters ended June 30, has the lowest estimate, predicting sterling will depreciate 15 percent versus the dollar by year-end.

Investors drove the pound as much as 11.8 percent higher against the euro from its low this year on March 1 on speculation Cameron’s austerity measures would shrink the nation’s 11 percent deficit and preserve its top debt rating. It’s starting to retreat as the planned cuts risk undermining the recovery.

The Bank of England lowered its 2012 growth forecast on Aug. 11, to 3 percent from 3.6 percent, citing “tight credit conditions” and the budget program. The U.K. will probably expand 1.2 percent this year, the median estimate of 24 economists surveyed by Bloomberg showed. German gross domestic product may increase 2 percent this year, with the U.S. rising 3 percent, separate surveys show.

Governments across Europe are attacking deficits after the region’s debt crisis sent bond yields in Greece, Portugal and Spain to the highest relative to German bunds since the euro was introduced in 1999 and prompted credit downgrades by S&P, Fitch Ratings and Moody’s Investors Service. S&P reiterated the “negative” outlook for the U.K. on July 12, saying its projections for the economy were less optimistic than those Chancellor of the Exchequer George Osborne presented in his emergency budget on June 22.

Gilts climbed that day as the Debt Management Office reduced the amounts of bonds to be sold in the fiscal year through March to 165 billion pounds from 185.2 billion pounds. U.K. bonds have returned 5.74 percent since May 6, compared with 3.95 percent on average for government bonds globally, according to Bank of America Merrill Lynch index data.

he difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with bets on an advance, so-called net shorts, was 4,431 on Aug. 17, compared with net longs of 5,021 a week earlier. Net shorts were as much as 76,745 in May.

A weaker pound may not be enough to give an additional kick to the economy as Cameron’s austerity program slows the recovery.

Hitesh Anand

I am a post graduate from Newcastle University, UK. I like studying and analyzing economic data and financial health of world.

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