The Value Of The Pound Against Its Main Competitors

It’s been a nervy start to 2023 for the Pound Sterling.

In the first fortnight of the year, the Pound rose by 1.3% against the Euro. In the first 9 days of the year before falling right back to where it started.

Against the US Dollar, the Pound has fared better. In the first 5 days of the year, it fell by over 2%. After which it climbed over 3.3% to hit its best level against the greenback since the 15^th of December.

Against the Australian Dollar, it’s been largely one way traffic. The Pound falling by over 1.5% since the start of the year to hit its lowest level since 12 October.

Bad News

• House price growth in the UK fell for fourth consecutive month in December, the worst run since 2008. Lawrence Bowles, director of research at Savills, said the “continued decline means average prices are now back to where they were before March last year. With the Bank of England still set to raise rates further and no sign yet of any significant reduction in mortgage rates, we’re expecting to see slower housing market activity in the mainstream markets over the next twelve months.”

• Global stocks and bonds lost more than $30 trillion in 2022. Inflation, interest rate rises and the war in Ukrain triggered the heaviest losses in the financial asset markets since the financial crisis of 2008.

• Supermarket prices were up 14.4% year-on-year in December, compared to 14.6% in November and 14.7% in October.

• UK Mortgage approvals have fallen to their lowest level since the early days of the Covid-19 crisis official figures show. The number of mortgage approvals tumbled by 20% between October and November 2022. Their lowest level since June 2020 according to figures from the Bank of England.

• The World Bank is warning that the global economy is \”perilously close\” to falling into recession. It cut its global economic growth forecast for 2023 from 3% to 1.7%. Pointing to persistent inflation and higher interest rates as well as the protracted war in Ukraine. If this occurs, it would be the first time in over 80 years that two recessions occured within the same decade.

• The FCA state that more than 200,000 UK households had fallen behind on their mortgage payments by June 2022. With bills overdue on around one in 40 home loans.

Good News

• According to the Society of Motor Manufacturers and Traders latest figures, UK commercial vehicle manufacturing grew by 42.9% in November. It marked the highest total output for the penultimate month of the year since 2011. Rounding off the 11th consecutive month of increased production this year. Growth was driven by overseas deliveries, which have seen double-digit increases throughout the year. Rising by 89.4% to 7,990 units in November – some 92.6% of which were destined for Europe. This represents the best January to November period since 2012 and is 21.1% higher than pre-pandemic five-year average.

• UK goods and services exports to the United States were worth £142.3 bn in the 12 months to June 2022. Up 11.3% on the previous 12-month period, according to the ONS.

• Adjusted for inflation, the NHS has 40% more funding than it did in 2010/11. It has more funding per head of population than ever before in its history, well above the OECD average.

• The weakness of the Pound throughout 2022 has seen American investors pile into the London property market. In the prime central London locations, some 50% of property transactions over £15 million completed in 2022 involved American buyers according to analysis by real estate firm Beauchamp Estates. Gary Hersham, founding director of Beauchamp Estates, said “During 2022 the volume of £15 million plus deals in London’s ultra-prime housing market has risen by 30% compared to 2021, the landscape dominated by American buyers undertaking cash purchases and capitalising on the strength of the US Dollar against the Pound Sterling which has given them an enormous price discount and paid for Stamp Duty and moving in fees. During 2022 there has effectively been one billionaire buyer property deal per week in Central London with war, pandemic and the sluggish performance of alternative investment markets driving multi-millionaires and billionaires to return to investing in London residential real estate which is a proven haven and stable asset class.”

• Investec, the investment bank, is now expecting that mild weather will help lower the utilities price cap to £3,317 in April; then £2,478 in July and to £2,546 in October. This compares to previous forecasts of £3,458, £2,640, and £2,704 over the same period. Indicating that the price cap will fall below the £3,000 level from April of the government\’s £3,000 energy price guarantee.

• Analysts are now predicting that The Bank of England will raise rates in 2023 from their current 3.5% level to a peak of below 4.5%. Far lower than what was expected just a few months ago.

• London has beaten its European rivals to retain its tech investment crown, despite Brexit. Figures from Dealroom and London & Partners show London sailed past its European rivals to retain its crown as the top destination for tech investment last year. Nearly $20 billion was pumped into the capital’s start-ups.

• Meanwhile, Japan is strongly backing the UK’s bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The UK has targeted joining the CPTPP since Brexit and joining the 11-strong trade bloc with more than 500m people would be a big boost to the idea of Global Britain. There are 970 Japanese companies active in the UK, which have created 170,000 jobs.

• The latest UK GDP data released last week showed economic output increased by 0.1% between October and November versus an expected 0.2% contraction.

• Meanwhile in the Euro zone, inflation fell by more than was expected in December. Ending a two-month period when the rate was in double digits. The flash index of consumer prices among the 20 European member countries rose at an annual rate of 9.2% in December. That\’s down from the 10.1% rate the previous month and a record annual rate of 10.6% in October.

• In the USA, the rate of inflation has fallen for the sixth month in a row to hit its lowest level in more than a year in a further sign that price pressures have peaked.

• Gold prices have jumped by 15% since early November 2022 on market expectation that the US Federal Reserve will slow down future interest rate increases in 2023.

Coming Up

This week sees the latest UK unemployment, wages, inflation, and retail sales data published. This will give the markets lots of clues about what is likely to happen on the 2nd February, when the Bank of England meet to decide their latest monthly interest rate decision. On the same day, the ECB will also announce their monthly interest rate decision for the euro zone. 24 hours earlier, the US Federal Reserve make their interest rate announcement.

Whilst all three major central banks are expected to increase interest rates further, it will be the size of February’s increase together with the voting pattern of the board members that will give the markets a steer as to where the respective value of the Pound, US Dollar, Euro, and the other major currencies go.

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This week\’s quote is from Michel de Montaigne

“My life has been filled with terrible misfortune; most of which has never happened.”