– Ireland’s credit rating cut from A+ to BBB+
– US consumer sentiment index today
Good morning. The chancellor of the exchequer heard he would be charged £900 for the office Holidays tree. Thinking this a tad on the pricey side he decided to pay a tenner for one at Pimlico market instead and get the lads and lasses in the Treasury to decorate it as their contribution to the big society. Exchequer Partnerships, the private company hired by the previous government to save money in Whitehall, said he couldn’t. It wanted its 900 quid. To prove its point, EP engaged in a paper war eventually won by the chancellor. The result, a saving of £890 on the tree and a hundred Treasury man-hours wasted at £40 an hour. The chancellor cannot afford many victories like that.
Nor can sterling afford too many losses like those it suffered on Thursday. It took no individually serious hits but it was able to make upward progress against only one currency. Even against the euro it managed to add less than half a cent, not exactly a shining achievement. The Halifax house price index came out as London opened, showing a -0.1% decline in November. The visible trade deficit was a little larger than predicted while the total deficit was less. At midday the Monetary Policy Committee revealed it had left the Bank rate at 0.5% for a 22nd month and the Bank’s stock of asset purchases would remain at £200 billion.
None of those announcements did the pound any harm. What seemed to be responsible was a downgrade by Fitch of its credit rating for Ireland’s from A+ to BBB+, three notches lower, because the outlook for the economy was “highly uncertain”. The news was self-evidently bad for the euro but it was bad for the pound as well because of Britain’s close economic ties to Ireland and continental Europe.
Sterling should not be too challenged by today’s UK producer price index data. Their impact on consumer prices is indirect at best and the Bank is clearly not fretting about inflation at the moment. The situation is similar for US import prices; they would have to be monster to have any influence on the dollar. US and Canadian trade balances have more potential to get things moving but the only figure with any real promise is the University of Michigan index of consumer sentiment. Of the various US confidence indices it is the Michigan one that has the most clout.
Sterling ought to have no problem holding onto its position against the euro today. It will have a harder job shaking off its guilt-by-association with Ireland. Have a good weekend.