Daily Economic Commentary: United Kingdom

Trading Discussion News and Economy
104

Ripppp! Cable got torn in yesterday’s action, as traders sold the pound on some comments made by the Bank of England. The GBPUSD pair fell almost 200 pips, falling all the way down to 1.6566.

BOE Governor Mervyn King made some interesting comments yesterday, saying that the BOE was keeping its options open on more economic stimulus. Speaking after the quarterly inflation reports, King said that the economy was not yet ready to have any stimulus withdrawn at this point. He also implied that a weaker pound would benefit the UK economy.

The recent inflation reports also indicated that inflation will remain below the bank’s 2% target for a long time, while revising up their forecasts for 3rd quarter growth. The BOE now predicts that the economy will grow by 3.75%, up from the 2.5% forecast in May.

Still, traders focused on King’s comments, which led to the pound’s demise. I wouldn’t be surprised if somebody told me that there were some members – possibly including King himself – who actually pushed for more stimulus in their last monetary policy meeting. Take note that in that meeting, the MPC decided to expand the asset purchase program by £25 billion, bringing the total to £200 billion. That being said, I’ll be keeping an eye out for the next MPC meeting to see if more stimulus is injected into the UK economy. Could pound weakness continue in coming weeks? We’ll have to wait and see…

This news dominated the markets, as the pound found no support despite some data that showed that the UK unemployment rate fell to 7.8% in September, which was better than forecast of the rate being at 8.0%. Other data also showed that unemployment claims came in better than expected, rising just 12,900, much less than the expected 20,200 figure, marking the slowest increase in claims in over a year.

Trading over the next couple of days may not provide as much fireworks, as no high impact data will be released from England over the rest of the week. Still, be careful today as the US comes back from it’s mid week holiday.

105

Hmp! The pound turned a cold shoulder to the USD rally yesterday as the GBPUSD stayed holed up in a tight range. Even with no UK economic reports on Thursday’s docket, the GBPJPY managed to close higher at the end of the day.

No economic reports are due from the UK in the next 24 hours. Would we see more consolidation for the GBPUSD? Maybe. Traders could be sitting on the sidelines, awaiting the next set of major reports due from the UK next week, thus resulting to the GBPUSD’s inaction.

Still, we might see a little more excitement later on as the US releases its trade balance data. This report, which is the only high-impact release on today’s US economic schedule, could show that the US trade deficitwidened from $30.7 billion to $31.8 billion in September. Watch out for sudden shifts in risk sentiment, especially if the actual figure misses the mark!

106

The pound edged the dollar in last Friday’s trading. The cable went as high as 1.6707 before closing at 1.6694.

With no economic catalyst at hand in the UK last Friday , the GBP still managed to close positively against the USD. The possible reason could be the 0.4% growth in the euro zone’s economy. Despite coming in slightly lower than expected, it was the first time that the euro zone posted a positive growth since the start of the recession. The UK and the US are the euro zone’s biggest trading partners. Hence, a expansion in the euro zone’s GDP could also translate positively on UK.

UK’s annualized CPI for the month of October will be issued on November 17. Inflation remains to be one of the major concerns of the BOE since the present CPI is still a bit far from their 2% target. The latest CPI is expected to jump by 1.4% from the 1.1% registered last during the last period. An increase in the CPI could lift the pound.

On November 18, the BOE will publish its recent MPC meeting minutes. Remember that the BOE recently expanded their Asset Purchasing Facility by £25 billion while leaving their interest rate unchanged. The minutes will provide us with more details regarding their latest decision.

Lastly, UK’s retail sales in October will be reported on October 19. Retail sales are seen to increase by 0.6% after staying flat at 0.0% during the previous month. Retail sales are a major component of the country’s consumption. Therefore, a rise in the figure could also push the GBP higher.

107

Looks like the Cable started the week on a firm tone yesterday when it soared all the way to last week’s high, around the 1.6850 price region, marking the second consecutive day of gains.

Sentiment shifting economic data from UK yesterday was non-existent so the most likely suspect for the increased appetite was the higher-than-expected uptick in US retail sales. Retail sales for October, which was predicted to rise by 1.0%, grew by 1.4% instead.

The data to watch out today is UK’s consumer price index report at 9:30 am GMT. The CPI measures the monthly change in the prices of goods and services bought by consumers. In other words, the CPI is a measure of UK’s inflation rate, one of the Bank of England’s primary considerations when setting the country’s interest rates. The forecast is that prices rose 1.4% in October. The core version of the report which excludes the price of volatile items such as food, energy, alcohol and tobacco, is expected to print a 1.7% increase. Lastly, the retail price index, which only considers items bought by people for consumption purposes, would probably decrease again, this time by 0.9%.

108

Resilient was the word of the day for the pound! Unlike other majors, the pound didn’t bow down (too low at least) against the USD, and was able to keep losses at a minimum. Cable closed lower at 1.6815, just 18 pips lower than its opening price.

The pound was boosted from some encouraging inflation data that was released yesterday. The CPI report indicated that consumer prices rose by 0.2% last October. This pushed the yearly inflation rate to 1.5%, much higher than the October’s reading of 1.1%. Over the past year, inflation (and deflation) has been a major concern for the Bank of England, especially given the amount of quantitative easing measures that the central bank has implemented. Take note that normally, more stimulus leads to inflation, but this hasn’t been the case, as consumer prices have been falling. Now that inflation is starting to pick up, it could signal that BOE will be less likely to keep adding to their asset purchase program.

Speaking of quantitative easing measures… the minutes of the latest monetary policy meeting will be available at 9:30 am GMT. It will be interesting to see what led to the decision to expand quantitative measures by £25 billion. I wouldn’t be surprised if we see that some members had actually pushed for an even bigger figure. Also, be on the lookout for comments from MPC members, especially after the results of the CPI reports yesterday.

Also, at 11:30 am GMT, the CBI Industrial Orders report will be released. The report measures whether manufacturers expect orders to pick up or not with scores above 0 indicating that orders are expected to increase. For this month’s reading, it is projected that the index will rise to -47, up from -51 last month.

109

Just as the BOE officials had a split decision on their bond-purchase program, price action of the pound pairs was a toss-up between a gradual descent and tight consolidation. The GBPUSD edged lower during the US session while the GBPJPY was busy building up momentum for a breakout.

Out of the nine members of the BOE’s monetary policy committee, seven voted to expand the bond-purchase program by 25 billion GBP, one voted for a 40 billion GBP expansion, and one voted to keep the program unchanged. Chief economist Spencer Dale, who lobbied for no expansion, said that an increase in the bond-purchase program could pose a risk to inflation. On the other hand, David Miles, who sought a 40 billion GBP expansion, argued that more bond purchases could provide insurance against downside risks to growth such as constrained credit.

Still, the entire committee raised their forecasts for growth and inflation. They projected that the inflation rate would reach the central bank target of 2% in the next two years even if the central bank starts implementing rate hikes next year.

Meanwhile, the CBI industrial orders expectations climbed from -51 to -45, surpassing the -47 consensus for November. Although this month’s reading is still at the negative zone indicating that lower order volumes are expected, the indicator’s modest improvement over the previous month’s reading shows that output is expected to grow slightly.

The cable was able to stage a short rally after these reports hit the airwaves but it lost ground when the US housing starts and building permits data were released. The reports showed that the US housing sector took a huge tumble, causing a wave of risk aversion.

Today, the UK has another key report on tap, namely its retail sales report. After staying flat in September, sales at the retail level are expected to climb by 0.6% this October. The actual figure is due 9:30 am GMT. Also due today is the public sector net borrowing report, which could show that net borrowing slid from 14.8 billion GBP in September to 6.7 billion GBP in October.

110

The pound lost its grip against the dollar for a third day in a row yesterday. Investors moved again to the safety of the USD given the lack of positive catalyst in the UK and the US. The cable fell to as low as 1.6607 before closing at 1.6659.

UK’s annualized retail sales rose by 3.4% in October, which is its fastest pace since May 2008. On a monthly basis, retail spending has increased by 0.4% from September. The increase in sales was said to have been due by the 10.7% year-over-year jump in clothing and footwear spending during the period. Sales are still seen to advance as consumers anticipate the holiday season. In any case, the monthly rise in the figure was still below the 0.6% estimate. The pound weakened a bit following the report.

No economic reports are due today in the UK and the US. Germany, on the other hand, will publish its PPI for the month of October. Germany’s monthly producer prices are seen to have risen by 0.1% in October after falling by 0.5% during the month prior. An increase in the figure could spark some confidence and boost the other “anti-dollars” like the EUR and possibly the GBP as well.

111

The Cable took another nasty hit last Friday as risk aversion remained strong in the currency markets. The Cable, after hitting a high of 1.6676 during the Asian session, fell almost 200 pips and ended the week with its head just a few pips above the 1.6500 handle.

Looking ahead, UK’s economic cupboard is packed.

Tomorrow, watch out for the quarterly inflation hearing at 9:45 am GMT. During the hearing, UK’s Parliament Treasury Committee hears out the Monetary Policy Committee’s opinion regarding their outlook on the country’s economy. At 3:35 pm GMT the same day, BoE Governor Mervyn King will be testifying in front of the Economic Affairs Committee in London. These talks are important to investors because the people speaking have a huge influence on setting the nation’s interest rates. An optimistic rhetoric or a prospect of a rate hike could finally help the pound find some buying support.

On Wednesday, expect to see UK’s revised GDP report for the third quarter of this year at 9:30 am GMT. Traders are looking forward to -0.3%, a slight improvement from the initial estimate of -0.4%. If the actual figure comes out higher than forecast, we could see traders buy up the pound.

On Thursday, the CBI Realized Sales survey will be made public at 11:00 am GMT. The survey tries to assess whether sales volume are increasing or decreasing. The forecast is a reading of 11, higher from last reporting period’s reading of 8. A reading above the “line in the sand” number of 0 means that sales volumes are rising, which is also good for the economy.

Oh, and lastly, the Nationwide House Price Index for this month could be released any time between Wednesday and Sunday this week. The expectation is that the selling prices of homes taken with mortgages funded by Nationwide grew by another 0.4%.

112

Bounce back Monday, as the cable was able to make up for some of the lost ground it made last week. The pair closed over a hundred pips higher, ending the day at 1.6618 as risk appetite was the theme across the board. When will traders make up their mind?!

The pound rallied yesterday as stocks rose, which once again led to a dollar sell-off. If you haven’t noticed yet, it seems that whenever stocks do well, so do high yielding assets like the pound. It seems that risk sentiment is still a major factor, so keep this in mind while trading.

We could be in for a lot of noise over the next couple of days as quite a few high impact reports are on deck. Today, at 9:30 am GMT, the BBA mortgage approvals and preliminary business investment q/q reports are on deck. The BBA report is expected to show that 44,000 new mortgages were approved last month, up from September’s figure of 42,100. The business investment report – which tracks capital investments made by corporations and the government – is predicted to show that investments fell by just 3.5% in the 3rd quarter, after they had fallen by an upwardly revised 10.2% the previous quarter. If these reports come in better than expected, we could see the pound trade higher.

I have a feeling that there might not be too much of a market reaction following those reports, as 15 minutes later at 9:45 am GMT, the inflation hearing reports will be available. Take note that during this recession, inflation has been falling, which has let the Bank of England induce more and more economic stimulus into the economy. In case you forgot, the central bank recently agreed to expand their asset purchase program by another £25 billion. Let’s see what central bankers have to say about inflation and the economy as a whole. And before I forget, don’t forget to keep your schedule clear at 3:35 pm GMT, when BOE Governor Mervyn King will be commenting about the inflation hearings as well!

If all those reports today aren’t enough for you, then don’t worry – tomorrow should be a douzy as well! The nationwide HPI m/m report could be released anytime tomorrow while the revised GDP q/q report is due as well at 9:30 am GMT. The GDP report is expected to show a slight improvement to a 0.3% decline, up from the initial release that showed a 0.4% decline.

113

The pound struggled to get back on its feet yesterday as BOE Governor Mervyn King announced that the central bank was open to more easing. Pound pairs moved sideways as King pinpointed the weaknesses in the British economy.

The UK’s inflation report was filled with dovish comments and warnings about the roadblocks to recovery. BOE officials noted that credit is still tight while spending remains constrained, dampening economic activity. This may prompt the central bank to expand their quantitative easing programs ahead of their next policy meeting in February.

Because of the bearish tone struck by the inflation report, strong economic reports from the UK were unable to provide upward momentum for the pound. Third quarter business investment sank by only 3%, less than the expected 3.5% decline. This was also seen as an improvement over the 10.2% drop in business investment for the second quarter. Meanwhile, BBA mortgage approvals rose a notch from 42.1K in September to 42.2K in October.

All eyes are on the release of the revised third quarter UK GDP at 9:30 am GMT today. A slight upward revision is expected but it probably wouldn’t be enough to carry the GDP reading to positive territory. Analysts forecast that the revised GDP would be at -0.3%.

No other high impact reports are due from the UK today but keep an eye out for US economic reports set for release. Durable goods orders, weekly unemployment claims, and new home sales could have a huge impact on risk sentiment so stay on your toes!

115

The GBP pounded the USD from the get go yesterday to close 150 points higher at 1.6724. Will we see a retracement given yesterday’s sharp rise? Or will risk appetite continue to push the cable higher?

UK’s third quarter GDP was revised positively to -0.3% from -0.4% as the slump in the country’s consumer spending and services industries eased slightly. The recent data show that consumer spending stopped falling during the third quarter, the first time it stopped dropping in 1.5 years. Note that consumption carries a 76% weight in UK’s overall economic activity.

The pound rose sharply in anticipation of this upward revision.

Today (11:00 am GMT), UK’s CBI realized sales will be reported. The index tallies about 160 surveys from retail and wholesale companies regarding the relative level of their current sales volume. A score above zero indicates a rising sales volume. We could indeed see a jump in this account given the 0.4% monthly advance in the recent headline retail sales. The GBP could get another lift with the index seen to rise to 12 from 8.

116

The pound wasn’t having such a good day yesterday since it was pounded during the greenback’s strong rally. Britain did enjoy an improvement in consumer activity but it wasn’t enough to carry the pound higher.

CBI’s index of realized sales rose from 8 to 13 in November, marking its fastest pace of increase in almost 2 years. Around 40% of retailers reported increased sales volume for the month while 27% reported lower sales. Aside from that, 19% of retailers said that they expect sales volume to keep growing for the next few months. You’d think that upbeat report would give a healthy boost for the pound, right?

Wrong! The greenback weighed the cable down, causing it to fall through the 1.6700 and 1.6600 levels. Well, the greenback must’ve gotten pretty heavy after a huge Thanksgiving turkey dinner! But there’s gotta be some economic explanation for this…

I found out that the USD rally yesterday was inspired by risk aversion - which, in turn, was caused by the possibility of Dubai defaulting on its sovereign debt. Credit-rating agencies already lowered their debt ratings for state-run companies, reminding investors that global financial stability is not guaranteed.

UK’s economic agenda is report-free for today but watch out for events that could cause a shift in risk sentiment. Also, since liquidity is expected to be light this Black Friday, be prepared to handle extra volatility!

117

The sterling got pounded by the greenback last Friday. Though, it was able to recover most of its losses during the second half of the day. The cable marked a new 3-week low at 1.6272 before closing at 1.6474.

No economic reports were due in the UK last Friday. The pound slid before the dollar given as pessimism brought about by Dubai’s default threat lingered around the markets.

The week will kick off with the release of UK’s net lending to individuals for the month of October at 9:30 am GMT today. The account is seen to have risen to £800 million in October from £600 billion. An increase in lending suggests that domestic demand picked up during the period. This is of course good for UK’s economy especially during these times that the country is trying to recover from its worse recession since WWII. A jump in retail financing also indicates that credit is now becoming more available to consumers. Remember that banks before were being criticized for hoarding cash. In any case, a gain in the figure could be bullish for the GBP.

118

The pound started the day right by gaining ground against the greenback but it soon fell back, unable to recover until the end of the US session. Poor economic data from the UK was most likely the reason behind the pound’s slowdown.

UK consumer confidence fell for the first time in over a year, according to the GfK survey. The index of consumer confidence dropped from -13 to -17 in November, falling short of the consensus at -11. Four out of the five sub-components of the index posted declines, cutting the indicator’s uptrend short.

Net lending to individuals also failed to meet expectations as it slid to 0.3 billion GBP in October. The 600 million GBP decline marks the largest contraction in consumer credit since 1993. Analysts were expecting to see a rise from 0.6 billion GBP to 0.8 billion GBP but were hugely disappointed. Talk about a bad day for the pound!

Lastly, mortgage approvals also fell short of the consensus as it landed at 57K in October. Still, it chalked up a humble increase over September’s 56K and reached its highest level in more than a year. Not bad!

Moving along… The UK has a couple of top-tier reports due today, namely the Nationwide HPI and manufacturing PMI. House prices could post another 0.4% uptick in November based on the Nationwide HPI, which is due at 7:00 am GMT. Meanwhile, the manufacturing PMI is expected to enjoy its stay above the 50.0 mark indicating expansion and even improve to 54.1 in November. Watch out for that report at 9:30 am GMT.

The US also has its share of housing and manufacturing data today. But, unlike the UK, the US might be in for some disappointing data. Pending home sales are projected to drop by 0.4% while the ISM manufacturing PMIcould fall from 55.7 to 54.8. The question is: Would the pound be able to take advantage of weak data from the US or would risk aversion dominate?

119

The pound avenged its previous losses against the greenback and the yen with a strong rally yesterday. The cable closed at 1.6620 from an opening of 1.6451. Also, the guppy ended higher at 144.06 from an opening of 142.19.

UK’s nationwide HPI for November came in at 0.5%, which is slightly higher than the 0.4% consensus. The average cost of a home in UK rose to £162,764. Though, the average home prices are still 13% below the high which was logged back in October 2007. In any case, the advance in the HPI shows an improving UK housing sector which is of course positive for the overall economy and the GBP as well.

On the other hand, UK’s manufacturing PMI for November unexpectedly fell to 51.8 from 53.4. This suggests that the recovery in UK’s manufacturing sector may be slowing. The PMI, however, is still above 50.0 which indicate expansion in the industry.

The pound lost support for a while after the report but the overall positive sentiment in the markets due to the affirmation that Dubai is negotiating just a smaller portion of its debt than originally thought was able to push it higher.

Later (9:30 am GMT), UK’s construction PMI in November will be due. The index is seen to rise to 46.9 from 46.2. We could be up for a negative surprise given the unexpected drop in the manufacturing PMI. Such could be bearish for the pound at least for the short term.

120

Both the cable and the guppy were able to advance yesterday as UK’s construction PMI came in slightly better than expected. Also, BOE Chief Economist Spencer Dale expressed his concerns against further quantitative easing, leading most traders to think that other central bank officials would share the same view.

According to Dale, an expansion of their monetary easing policy could result to uncontrollable asset price increases. Inflation might then overshoot the central bank’s 2% target and even reach 3% in the near term. He pointed out that these price increases would be more costly to moderate. The pound received a boost from these comments as some traders were convinced that Dale’s concerns would prompt the BOE to hold their easing policies at their current levels.

UK construction contracted at a slower pace this November as the construction PMI climbed from 46.2 to 47.0. Components of the report also showed that new order volumes rose for the first time since February 2008.

Today, it’s the services sector’s turn to post its PMI for November. The reading is expected to rise from 56.9 to 57.1, signaling that expansion in the services sector is getting stronger. If the actual figure due 9:30 am GMT hits the mark, then the pound could pocket more gains.

Keep an eye out for US economic reports due today! That’s the weekly unemployment claims, ISM non-manufacturing PMI, and a speech by Fed Chairman Ben Bernanke. Watch out for sudden changes in risk sentiment!

121

Cable was fuzzy yesterday, and traders decided go outside and play with their dollars instead. The GBPUSD pair fell over 150 pips in intraday trading, to close the day at 1.6561.

The pound dropped after the release of the headline [services PMI](http://www.babypips.com/forexpedia/Services_PMI_-_United_Kingdom) report, which had a reading of 56.6. It was expected that the index would improve from last November’s score of 56.9. Still, you can’t judge a book by its cover right? While the headline report showed a dip in the index, the new business component rose for the 4th straight month, while the job loss rate was at its lowest level in over a year. In addition, the index was still above the expansion/ contraction line of 50.0.

I suspect that the pound’s losses worsened on the news that the ECB would be making its first moves to withdraw economic stimulus from the economy. Seeing as how Bank of England officials believe that England may need even more stimulus, it looks like fundamental weakness is catching up on the pound.

With the US NFP unemployment report on deck tonight at 1:30 pm GMT, how will traders and investors feel about risk? If the report shows a dip in job losses, we could see a boost in risk sentiment, which could give some support to the slumping GBP. On the other hand, if job losses come out larger than expected, we may just see USD buying trample all over the pound once again.

122

The cable plunged by more than 150 pips during last week’s NFP aftermath as the US churned out surprisingly strong employment data. In contrast, the GBPJPY surged from the 146.00 area to a high of 149.08.

The UK’s economic calendar was empty last Friday, leaving the NFP report as the dominating force in the cable’s price action. Well, if the pound fell against the US dollar, why did the guppy rise? I guess the upbeat NFP data gave the US dollar enough strength to overtake the Yen as the more preferred safe-haven currency!

Anyway, let’s move on… The pound definitely has something exciting to look forward to for this week. Although no economic reports are due from the UK today, volatility for the pound pairs should heat up by Tuesday upon the release of UK’s Halifax HPI, manufacturing production, and industrial production data. All three reports are expected to print marginal improvements over their previous readings. Also due on Tuesday are CBI industrial order expectations and the NIESR GDP estimate.

Wednesday’s agenda is also a jam-packed one. Nationwide consumer confidence, trade balance data, and the British government’s pre-budget report are due then.

The main event for the week, the BOE rate decision, is scheduled for Thursday. Recall that the central bank reached a compromise by expanding their asset purchase program by 25 billion GBP during their last monetary policy statement. Would they expand their easing program further this time? BOE Chief Economist Spencer Dale has already warned about the dangers of further easing but Governor Mervyn King mentioned that he has an open mind for more expansion. Ooh, tension!

But the excitement doesn’t end there for the pound… Come Friday, we’ll have a dose of inflation data as the UK releases PPI figures. Producer input prices are expected to rise by 0.6% while producer output prices are estimated to climb by 0.4%.

123

Like most of the other majors, trading of the pound was also volatile yesterday. The cable closed slightly higher at 1.6442 from 1.6431. The guppy (GBPJPY), on the other hand, fell to 147.19 from 148.47.

UK’s economic calendar was report-free yesterday. Still, the pound plunged versus the yen and the dollar during the early hour of the European session when ECB President Jean-Claude Trichet said that the central bank will continue to provide liquidity to the other banks even for an extended period of time even as the economy improves. This dovish statement sent investors away from the “anti-dollars” and into the USD and JPY.

The pound was able to recover its gains vis-à-vis the dollar but stayed flat contra the yen during the US session.

Earlier today, UK’s BRC retail sales monitor report showed that sales on the retail level have expanded again by 1.8% in November. The index takes into account a smaller sample compared to the official government figure but it still provide a very good statistic. Sales are expected to increase also in December.

Today, UK’s Halifax HPI is due at 9:00 am GMT. The price of homes that are financed by the Halifax Bank of Scotland is expected to have rise again by 0.8% in November. It already advanced by 1.2% during the previous month.

On a separate memo, both the country’s manufacturing and industrial productions are seen to have risen by 0.5% in October. There seems to be no trend looking at the past data. Nonetheless, an increase in these accounts could give some short term support to the pound.

Later in the day, the UK’s National Institute of Economic and Social Research (NIESR) will release its estimate of the country’s GDP for the month of November. Their own estimates have been pretty accurate in the past. Remember that they were correct when they estimated a contraction during the third quarter. Given this, any number from their research could swing the pound in either way accordingly.

124

Poor economic data together with increased risk aversion in the markets bumped the Cable a couple of notches down in Tuesday’s session. The Cable ended the US session around the 1.6300 handle, almost 150 pips lower from its Asian session opening price.

The manufacturing and industrial production report for October, which were both expected to print a 0.5% rise, remained flat. According to analysts, exports won’t begin to rebound until next year, which would continue to put downward pressure on production.

The only “positive” data from that day was the Halifax house price index for the month of November. It showed that prices increased 1.4%, almost twice the 0.8% increase initially predicted. Now, now, hold on for a minute… I say “positive” because on a year-on-year basis, house prices are still 1.6% lower.

The amount of ugly data from the UK is not helping the Cable at all. Amongst the major currency pairs, the Cable has been considered one of the weaker ones, as UK’s fundamentals remain relatively frail compared to both its Western and Asian counter parts. If the UK continues to print pessimistic data, 1.6100 could be the Cable’s next stop.

On the docket today is the country’s October trade balance (9:30 am GMT) and the yearly pre-budget report (12:30 pm GMT).

The trade balance is expected to narrow to -£6.9 billion from -£7.2 billion the month before. The trade balance computes the difference in value between imported and exported goods. If there is a deficit (negative balance), it means more goods were imported than exported. A rising trade balance is usually seen as bullish for the domestic currency because in order must first get their hands on some Sterling to buy UK’s exports.

Meanwhile, the pre-budget report will talk about how the country’s government sees the economic situation and the government’s financial objectives for 2010. UK’s Chancellor, Alistair Darling, is currently stuck between a rock and a hard place. On the one hand, the country’s deficit is bulging, which puts pressure on the government to raise funds and control spending. To solve this, the government is considering raising taxes for the high earners but then again, a tax hike this early could undermine recovery.