Currency Briefing: Autumn Statement preview- UK growth set to double

on Dec 3, 2013
Updated: Oct 21, 2019

“Britain’s growth rate has doubled and will improve again next year, official forecasts published with the autumn statement this week will say – but George Osborne will reject calls to ease austerity,” reported the Sunday Times on the weekend. The Autumn Forecast Statement is scheduled for release this Thursday and is one of two Treasury reports each year to Parliament following the preparation of economic forecasts.

According to the Times’ story, the Office for Budget Responsibility (OBR), the Government’s independent fiscal watchdog, will report GDP growth well up from the 0.6 per cent forecast in March to 1.4 and will
project annualized growth next year of 2.3 per cent.
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An upgrade of this size will be the largest percentage point increase between the Budget and Autumn Statement since the OBR was formed in 2010, as well as the biggest revision in the Treasury’s archive, which dates back to 1997,” the Sunday Telegraph reported, and raises the prospects of a credit upgrade.

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S&P, the only rating agency which still rates the UK at AAA, placed the country on negative outlook this year, meaning at least a one-in-three chance of a downgrade. S&P said in April it would consider upgrading Britain’s outlook to stable if the amount of debt steadied and the economy “recovers more quickly and strongly than we currently anticipate.” Moody’s, which back in February was the first rating agency to strip the UK of its AAA rating, is thought unlikely to alter its assessment in the near term.

Writing for the Sunday Telegraph, columnist Irwin Stelzer opines that incoming Fed Chair Janet Yellen will live with inflation for the sake of jobs. Stelzer discusses the rationale behind the Fed’s thinking and states his belief that Yellen, “would rather risk inflation and the distortions produced by zero interest rates than continued high unemployment… If that involves accepting a higher rate of inflation – 4 per cent is being bandied about, although not by Yellen – so be it.”

Stelzer joins other commentators who see outgoing Fed chairman Ben Bernanke’s musings on ‘tapering’
back in May as unfortunate in hindsight. “Yellen’s job will be to persuade her colleagues to put off any significant taper until the recovery is more robust and the job market has improved.”
Due out today in the UK are Halifax House Prices and Construction PMI, both for November.

Sterling has already gained support from recent strong manufacturing PMI numbers. November came in at 58.4, the highest level since February 2011, from an upwardly revised 56.5 in October. Particularly bullish was the employment component, up to 54.5 from 51.9 and fuelling expectations that the unemployment rate will by the third quarter next year fall below the seven percent threshold at which the BoE will consider hiking rates.

The GBP/USD eased last week to close above $1.6370, the December 2012 high. That may prove to be a key event as paving the way for an ascent to the $1.6634/1.6745 level, embracing the 200-month MA, a 15 year pivot line and the April 2011 high. These levels are expected to hold and to prompt a reversal, according to technicians form Commerzbank. Interim support in the near term remains the $1.6259/55 October high.
The pound slipped further against the dollar yesterday, after the release of upbeat US data, but remained within sight of 27-month highs.
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