There are plenty of people who think the current state of the UK economy is a cause for celebration. Lots of numbers up including employment.
This belies the uncertainty ahead, and while the UK Pound continues to be at an effective 20% discount to the US Dollar, resources, people, products and services in the UK are effectively cheap.
While this is likely to continue, those celebrating it as a result inside the UK should think again. In so much as individuals and business in the UK can acquire all the raw materials they need for manufacturing and business in the UK, it would be great. Sadly, apart from personal service, there are few to no products in the UK made entirely in the UK from UK Raw material.
Exceptions are of course energy, oil, gas, wind, solar. Add to that nuclear power, and outside of the labor, technology requirements, the UK is expanding. Add to this government endorsed push for increased fracking, often overriding local wishes and you have one sector that is somewhat protected.
The rest economy though, doesn’t look so good. Anything bought overseas, finished goods, imported food, and raw materials will increase in price overcome coming months and years until the cable(UKP/USD) resets to something like the $1.50 mark.
FYI. Most futures contracts and supply contracts sources from overseas are priced in USD, even if they don’t involve US companies or US resources.
So, what do the currency experts say? The following is the XE Market Analysis for December 30th 2016.
Not so happy new year.
Sterling has been trading with a heavy tone in the final week of 2016 trading, making a two-month low versus the dollar, a seven-week nadir against the euro and a one-month low versus the yen. The pound has now more than reversed the gains seen from early November, when the BoE adopted a neutral policy bias, through to early/mid December. The pound remains over 17% down versus the dollar since the Brexit vote in late June, and by some 12% in the case against the euro. BoE MPC member McCafferty last week warned that rising inflation and slowing global growth would hit the supply side of the economy in 2017, and there is a general view that UK growth will be sub-optimal over the next year as Brexit-related uncertainties drag on. Cable support is at 1.2200, while initial resistance is at 1.2297-1.2300, which encompasses the year-end holiday-season highs, ahead of 1.2344-50. We anticipate a return to levels around 1.2100.