Real income falls

Currencies Direct March 30th 2011 - 2 minute read

Household’s disposable income is officially on the slide according to figures from the Office for National Statistics yesterday. Real income dropped by 0.8% over last year with a 0.5% in the final quarter which suggests the living standards in the UK are on the slide. There was a slight reprieve on the GDP front as the dire 2010 last quarter results were revised up to half a percent contraction from the original 0.6% estimate. Despite the effects of the bad weather in December the economy stood still in the last quarter of 2010 it said, a slight improvement on the previous calculation.

Poor growth is not the only headache for the Bank of England as inflation remains well above the 2% target level and there appears to be rumblings of how serious the BoE are taking this level. Martin Weale yesterday reiterated his point for a rate rise stating “Continuing above target inflation could lead to inflationary expectations becoming entrenched”. Weale is concerned the sustained inflation pressure could be even more severe than a figure tracking below the 2% target.

Over the US and last night saw a couple of Fed members cement their hawkish tones by talking about a removal of the current QE measures. Both Fisher and Bullard recommended that they would not vote in favour of additional QE in June while a move to begin a reversal of the current policy looks unlikely. Employment data over the next couple of days will be crucial with the ADP survey today and the non-farm payroll numbers on Friday providing a much clearer indicator of the way things are going. The FOMC have for a long time suggested the importance of US employment recovering before they will consider starting to normalise monetary policy. The Dollar has had a good couple of days on the back of Yen, Swiss and, to a lesser degree, Euro softness and should pressurise better levels leading into the Friday numbers.

Higher equity prices in US and then Asian markets helped the Aussie and New Zealand Dollars to touch new highs this morning but as mentioned yesterday, an enforced slowdown in growth in China will likely reverse the currencies’ recent bull runs.

Today there are minor data releases from the UK, the first indicating the performance of the services sector and then later, a CBI sales survey and also some confidence indicators from the Eurozone. The main interest however will be the ADP employment change figure from the US later on. We are also scheduled to hear from an assortment of Central Bank officials during the course of the day with the Bank of England’s Paul Fisher speaking this morning, a couple of ECB board members also talking (as well as the stress test chief, Enria) and then a raft of Fed voting members standing up this afternoon.

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