All eyes were on political theatre in Westminster last week. No-deal Brexit looks more likely. And with it some economic disruption – how much is unknown. The global economic outlook is not promising: the US and China are still locked in the trade war and the Eurozone is fighting to stave off a recession.
The Bank of England is more upbeat about the UK economy than three months ago, but its hands are tied by Brexit. Across the Atlantic booming employment coupled with a 50yr low in the unemployment rate looks set to keep a lid on expectations of a rate cut by the Federal Reserve.
The US economy is the main engine of global growth, posting higher than expected growth in Q1 2019. In China, latest GDP data hints at a stabilisation in activity thanks largely to another sizeable fiscal boost. However, recent downbeat Euro area business surveys point to a continued sub-par performance in early 2019.
Some crumbs of comfort for the UK economy, but the outlook remains uncertain
When people cast their EU Referendum vote on June 23, I suspect not many would have seen it as a ballot on the price they would pay for their next iPhone. But, in a sense, it was, as the proceeding fall in the value of the pound Sterling has had wide-ranging impacts for the economy – both good and bad – including the price we pay for goods. Continue reading
Today sees the release of June data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by Markit – indicated that output growth was maintained as new orders rose at an accelerated rate. Increased new business led to a build-up of outstanding work, but the rate of job creation eased. Meanwhile, cost inflation moderated and companies raised their output prices for the first time in ten months.
The ECB’s asset purchase programme (QE) is buying Eurozone government bonds which drives up their price (increased demand) but the interest rate yield (which moves inversely to the price) is heading lower. The opposite dynamic is apparent in the US due to its robust economic recovery and rising interest rate expectations. The yield on a 10-yr German bund (government bond) is just 0.22% (the rate was 0.54% at the start of the year). This compares with 2.14% for the equivalent US government bond. The growing interest rate differential is a key driver behind the recent currency moves but not the only one. Political uncertainty surrounding Greece is still weighing on euro sentiment.