Europe Ahead: UK economy between spending cuts and supporting growth
International Trading
THE TECHNIQUE OF GIVING A GOOD MASSAGE
14 years ago
Sunday, September 19, 2010
, Posted by Usman Ali Minhas at 8:52 AM
This week the European attention will be on UK’s public debt and the BoE’s minutes were investors are anxious to see in Sentance altered his hawkish stance amid weakening data.
The debt crisis in Europe continues to be the hot topic, and UK is a deeply indebted nation with heavy spending cuts intended to shorten the shortfall. The government had to implement heavy stimulating measures with the outbreak of the financial crisis 2008 which strained an already inflated deficit.
Public debt recorded 11.1% of the GDP by the end of last year and the new government came into office with the first aim of attacking the huge deficit and debt burden. Osborne announced an emergency budget trimming spending further this year and over the course of the coming five year to take the deficit back into the EU ceiling of 3.0% of the GDP.
Anchoring the deficit can surely start to restore the lost confidence in public finances and the standing points of indebted nations, yet the path to that restored view will be on the expense of a sluggish and fragile recovery. Trimming the public debt and anchoring the deficit will require curtailed government spending and surely higher taxes which is further strain on an already fragile recovery, low tax recipes and elevated unemployment.
Still UK is on the path to reduce it deficit where data this week are expected to show progress in the area with a surplus in August by 4.1 billion opposed to the previous shortfall of 8.1 billion.
The BoE is aware of the pressures facing the economy on the domestic and international front and accordingly preserving their prudent “wait and see” monetary policy. The minutes of September meet are also due this week where expectations are still for Sentance to have voted for hiking rates for the third consecutive meeting especially as we saw annual CPI inflation still reluctant to fall back below 3.0%.
Central banks across major nations remain generally dovish, where last week we saw the SNB turn prudent and Japan actually intervening and this week the focus globally will be on the Federal Reserve.
The European week will surely be heavily shaped with the final Fed decision which is anxiously anticipated in the market to see if the FOMC will result in further monetary stimulus and commit to further treasury purchases. The move will define the market trend which will remain jittery on the news especially as the dollar already weakened on expectations of further maneuvers and failure to meet expectations will likely ignite a new wave of pessimism in the market.
The data ahead will be the concentration of the week, especially the Feds decision as we said. Nonetheless, the euro area will be participating by the end of the week with flash estimates for the developments in the services and manufacturing sectors. Advanced PMI September estimates so far suggest a slight setback in the recovery pace which confirms the downside pressures at a global scale in the second half of the year and likely to press the euro to the downside especially combined with sovereign jitters.
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