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

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.

Report by Philip Ryan

Written by
Currencies Direct

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