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UK economy headed for a slump says national institute

Fri, Jul 25 2008, 10:46 GMT
by Benny Menashe

Finotec Group Inc.

The U.K. pound fell against the euro after the National Institute for Economic and Social Research said the economy faces its worst performance since the 1990s recession. Britain's gross domestic product will rise 1.5 percent this year, 1.4 percent in 2009 and 1.9 percent in 2010, according to the London-based group, whose clients include the Treasury and the Bank of England. The pound dropped and government bonds rallied yesterday after a report showed a record decline in retail sales. Bank of England policy makers left the nation's key interest rate at 5 percent on July 10 after lowering them three times since November in a bid to stave off a recession. GBP/USD is currently trading at trading at 1.9878 as of 7:47 am, GMT.

Orders for U.S. durable goods probably fell in June as surging raw-material costs prompted companies to limit spending, economists said ahead of a government report today. The worsening housing slump and stricter lending rules may weaken orders even more in coming months, raising the risk that the economy will stall. The jump in commodity costs is also hurting economies abroad, signaling companies will not be able to count on sustained gains in exports. ``The trend in the economy broadly is weakening,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``We got a lift for a month or two from rebates but the trend in consumer spending is slowing.'' EUR/USD is currently trading at $1.5706 as of 7:54 am, GMT.

The euro may extend its decline to $1.5344 should it close below so-called support at $1.5613, based on charts that predict price movements, said George Davis, chief technical analyst in Toronto at RBC Capital Markets. Support at the $1.5613 level represents the July 7 low, according to RBC's chart. Europe's single currency has fallen 2.2 percent against the dollar since reaching a record high of $1.6038 on July 15. Support is where buy orders may be clustered. On the other hand The Japanese yen will weaken as rising commodity prices worsen the trade balances in the country, according to Morgan Stanley. ``Terms-of-trade shocks,'' a negative change in the ratio of export to import prices, will affect the nations' currency and growth rate, analysts at Morgan Stanley said. Japan is vulnerable to crude prices because they import almost of their oil, in contrast to other Asian nations such as China that produce the commodity, the analysts said. USD/JPY is currently trading at 106.90 as of 8:12 am, GMT.

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Published on  Fri, Jul 25 2008, 10:52 GMT