Economic Recovery Slowing Down

Paresh Davdra is the Dealing Director of RationalFX, Currency Specialists. Tuesday 04th November 2014 15:07 EST

Last week there were clear signs that Britain's brisk economic recovery is showing more signs of cooling after shoppers bought less, exporters took a hit from Europe's slump and banks approved the fewest mortgages in more than a year. Data released on Thursday reiterated that the Bank of England is signalling that it is in no rush to raise interest rates, even as Britain's economic growth continues to outpace that of most other industrialised nations.

The pound touched its lowest level in a week against the dollar after official figures showed retail sales fell more than expected in September. This was also reflected in businesses ability to obtain credit. Indeed net lending to businesses continues to fall, despite efforts from the bank of England to increase business borrowing. Net lending to all firms fell to 3.9 Billion in the second quarter of 2014.There was also little good news for the government in the run-up to May 2015 General Election. Government borrowing rose more than 10 percent in the first half of the financial year, giving Chancellor George Osborne little scope to offer sweeteners to voters before a parliamentary election in May.

The Office for National Statistics reported that the UK borrowed £11.8bn in September, which is 15% or £1.6bn more than this time a year ago. The European Central Bank (ECB) began its new stimulus programme on Monday, buying up covered bonds, which are debt backed by cash flow from mortgages or consumer loans. It was reported that the ECB has wasted no time in mopping up debt from France.

The ECB hopes that the scheme will encourage banks to offer credit to small businesses in Europe, to drive economic activity and inflation.Also The European Central Bank is also considering buying corporate bonds on the secondary market. Essentially this will help large European corporate companies gain greater access to financing thus allowing them to grow their operations which will help encourage growth and stimulate the ailing European Economy.

Manufacturing output expanded at the fastest rate for three months, while growth of service sector activity was unchanged on the six-month low seen in September. In both cases, rates of growth remained historically weak and below the averages seen in the year to date. Although output rose at a slightly faster rate, new orders barely rose in October, registering the smallest monthly improvement since orders began rising in August of last year.

Last week there were increasing signs that the American economy is getting stronger with job gains are on track for their strongest year since 1999 and cheaper gas prices are keeping households upbeat about the economic expansion amid the weakening in Europe and emerging nations. Faster wage increases and more broad-based improvement in the labour market would help further spur the consumer spending that makes up about 70 percent of the economy. Fewer Americans also filed applications for unemployment benefits over the past month than at any time in 14 years as an improving economy prompted employers to hold on to staff.

The four-week average of jobless claims, dropped to 281,000, the lowest since May 2000, from 284,000 the week before. The reading for the week ended Oct. 18 climbed by 17,000 to 283,000.Sustained demand for goods and services is encouraging companies to retain workers, even as economic growth slows abroad. As a result, firings have hovered near historically low levels while gains in payrolls also bolster total income, giving households the confidence and the means to spend.

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