It’s quite unusual to begin a commentary on the GBP by noting that it is lower than last night’s closing levels. On Friday, the British Pound traded at USD1.35, 1.36 and 1.37. Yesterday it moved on to 1.38 around the middle of the European morning but after a quick half a cent pullback, then went on to a best level in New York around 1.3815. Overnight, with a somewhat steadier US Dollar, GBP/USD is around 50-60 pips lower at 1.3755.
We mentioned yesterday the collapse of one of the UK’s largest construction companies, Carillion, which employs around 43,000 people and has been working on a host of government-funded infrastructure projects as well as many contracts for hospitals, schools, prisons and the Army. We said, “this is a story which is sure to get bigger over the coming days”. Today, unsurprisingly, we’re now hearing about the second-round impacts on a host of subcontractors and small business, many of whom are now unsecured creditors and likely to lose huge amounts of money. It is an added uncertainty the UK economy could do without right now.
As for the Brexit negotiations which are set to resume soon, a report in today’s Guardian newspaper claims that, according to senior diplomatic sources, “repeated representations have been made to EU officials by Oslo over their fears that an overly generous offer to the UK will fuel calls in Norway to renegotiate its ties with the bloc”. Norway makes larger financial contributions to the EU per capita than the UK and accepts free movement of people in order to have access to the single market. But it has no decision-making role in Brussels’ institutions. A senior official said: “The Norwegians are following this very closely to make sure that we are not giving the UK a much more favourable deal.”
UK CPI figures this morning showed the first fall in the annual rate since June last year. The Office for National Statistics said the fall in inflation from 3.1% to 3.0% came mainly from air fares, along with a fall in the prices of a range of recreational goods, particularly games and toys. These were partially offset by an increase in tobacco prices, reflecting duty increases that came into effect following the Autumn Budget, along with an increase in petrol and diesel price. It’s only a tiny fall in inflation, but the figures do at least give some hope that the peak in CPI might now have been seen.
The British Pound opens in North America this morning at USD1.3755, CAD1.7110 and AUD1.7300.