The pound continued to fall against the majority of the 16 most actively traded currencies yesterday, with the exception of the US dollar as the Office for National Statistics reported that UK employment is now at the highest level since 1992 as the turmoil in the financial markets takes its toll on economic growth. The number of people unemployed rose by 114,000, to 2.57m and that took the unemployment rate to 8.1%.
The ‘politically charged’ unemployment rate for 16 to 24 year olds was 21.3% of the economically active population for that age group in the three months to August 2011, up 1.6% from the three months to May 2011.
Analysts from Barclays Capital commented that “With tax and price inflation running at nearly 5%, real earnings have been declining for 17 months in succession. (…) This month’s data reaffirm the disturbing labour market picture of rising unemployment and falling real earnings growth (…) the fact that full-time employment is still holding up is an encouraging sign. However, given the weak demand outlook and low levels of productivity it seems likely that unemployment will continue to rise. Earnings growth should also remain slow as low vacancies are likely to weigh on wage demands.”
The euro continues to receive support and strengthen on the back of renewed optimism that Europe is on the right road to manage its debt crisis with reports out of Slovakia that it is very likely to vote for expanding the bailout fund in its second round of voting this week. Sentiment was also lifted after EC President Jose Manuel Barroso outlined a plan to recapitalise Europe’s banks.
Data from Eurostat, the EU’s statistics office showed that euro zone industrial production increased by 1.2% on the month and 5.3% on the year in the month of August. Looking at the different sectors and comparing with data from the same month one year ago, capital goods production increased by 12.2%, that of intermediate goods by 5.3%, durable consumer goods by 2.8% and that of non-durable consumer goods by another 1.9%. Energy production fell 3.5%.
Looking at the different euro zone countries for which data is available, and also in ‘on year’ terms, industrial production increased in 15 countries and fell in another 5. The biggest increases were in Ireland (10.1%), Germany (7.8%), France (5.1%) and Italy (4.7%). The biggest drops were in Portugal (-1.5%) and Greece (-12.3%).
The return of risk appetite helped the pound reach a 4 week high against the US dollar but exacerbated its fall against the high yielding currencies like the Australian and New Zealand dollars and South African Rand and the commodity backed Canadian dollar.
However, the shift towards risk appetite was tempered by a report from the International Monetary Fund (IMF) that it has lowered its growth forecasts for Asia for this year and next. The reduced forecasts come amid worries over economic growth in Europe and the US, two key export markets for Asian countries.
The IMF now sees Asia growing 6.25% this year and 6.75% next year, having earlier this year predicted GDP growth of close to 7% in both years.
After a strong start to 2011, economic activity in Asia has moderated.
