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UK credit rating outlook under scrutiny

Triple- A worries also mount in the US extending dollar losses

Dollar index near a 5 month low

Yesterday we saw incredible volatility in the markets as firstly Standard & Poor’s said it was revising its outlook for Britain’s AAA credit rating from “stable” to negative. This had a whirlwind effect on the markets with the FTSE falling nearly 3% and sterling tumbling across the markets. Official data showed that the treasury borrowed £8.5 billion last month and the S&P warned that the debt rating would be downgraded if the next governments’ fiscal plans do not show a secure downward trajectory in the medium term. A downgrade would be a huge blow to the status of Britain and would lead to the Treasury being required to pay higher interest on future borrowings. Sterling weathered the initial dip of 2% against the US Dollar and 1.5% against the Euro and retraced back to earlier highs of 1.58 against the USD in later trading and gained some of its losses back on the Euro. Moody’s later informed the market that they had no plans to change their current rating of AAA and stable helping the pound. The response from the UK government and head of the DMO affirmed “There are significant uncertainties in the global economy at the present time and S&P point out that the outlook could be revised back to stable ‘if fiscal outturns are more benign than currently (they) currently anticipate’,” – let us hope Mr. Darlings growth forecasts are correct!
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No we haven’t turned Scottish, CD Head Office is now the proud owner of a Nintendo Wii games console. How is this going to help with raising money for charity??

Well, the console is set up in a central location and everyone will be able to play at the end of the working day and during their lunch break for a cost of 10p per person per game. A bargain for everyone, that should create some healthy competition between departments and also give a much needed activity rush. I know I’m looking to improve my upper body strength and my tennis game before the Wimbledon tennis championship starts! All money raised of course will be split evenly between this months charities, Leukaemia Research, Barnardo’s and Alzheimer’s Research. Watch this space for more Wii news…

Obviously this week we will have the usual Dress Down Friday and activities that are now common place every week and we will also be conducting a sweep for The Champions League Final for the first goal scorer. More news on that next week!

Sterling started the morning on a great footing- hitting a new 6 month high against the dollar to 1.5816 and hitting a 3 month high against the euro to 1.1460. Sterling was bullish hitting an index related high of 81.2 against a basket of currencies- last seen in December 2008. In addition the UK economy received praise from the IMF on their aggressive action in tackling the recession thus far. However the IMF also warned that the government needed to adopt more plans to reduce the huge scale of government borrowing. Today this facet was drilled home as the S & P downgraded the UK outlook from stable to negative. Immediately on this news sterling was dramatically sold- losing 2% on the USD and 1.5% against the euro in the space of 10 minutes! Going forward I feel the amount public debt will increasingly become a focus for global economies…once recovery is apparent economies will have to face up to the reality of the massive borrowing that was required to get the economy moving.

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The old adage about “Its not what you know but who you know” can often prove to be true and in many ways no more so than here in Spain.
Generally speaking the Spanish people like to get to know each other a little more before doing business together. For many of us who decide to move to Spain and start up or buy our own businesses it can be a long and arduous process with invariably a lot at stake.
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Sterling hit a level of 1.5523 in trading yesterday- this is the highest level of 2009 and marks a psychological and technical break higher from its previous range. The pound was buoyed by news in the UK banking sector in a FT report that the government was considering a sale of its shares in Lloyds and RBS thus adding overall confidence to markets. Sterling has also made gains against the euro- hitting 1.140 in trading yesterday. Alastair Darling also opined in an article in the Times that his budget forecasts will remain and that the growth will be seen at the turn of the year.

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Over the last week we have witnessed more snippets of economic good news being clouded by renewed weak data and economic uncertainty. Firstly let’s take a look at the positives: we saw a bullish outlook expressed by the deputy governor of the IMF who stated that they were looking for an up-turn in economic fortunes by the beginning of next year. This is notable as the IMF has generally painted very bleak forecasts in the recent past. In the UK, the Rightmove survey indicated a rise in asking prices of 2.4% in May after the 1.7% increase in April are we seeing a bottom in the housing market? You would be a brave person to put your house on it- looking at the report in more detail the rise was attributed to lower volumes and limited supply preventing further price falls.

On the weaker side of recent data we turn our attention firstly to the eurozone…following Fridays sharper than expected contraction in GDP the media over the weekend focused on the cracks appearing on the outlook for the eurozone. In the Times this morning, Kaletsky sets out why more and more people are becoming concerned over the methods being implemented by both the ECB and the German government to try and drag the Eurozone out of the current slough that has spread from Eastern Europe into the central region and now into the western countries. Recent statistics released by the European Commission revealed the worst economic numbers ‘produced by any official institution in the capitalist world since 1945′. The Euro has continued to lose ground against the major currencies in early trading.

For the week ahead the major data to look out for will be the ZEW which will give a reflection of economic sentiment. On Wednesday we have the Bank Of England minutes which will focus on the extra £50 billion in the QE programme. On Friday we have the Bank Of Japans interest rate decision- recently the Yen has lost ground with an increase in swine flu cases underming its safe haven status.