Great Britain plans to reduce the budget deficit at the expense of international investors and big-scale reduction of budgetary spending.
The price takes everything into account. This is one of the market fundamentals. At the beginning of the last week the British Pound sharply declined in value with further recovery within the next few days.
It should be noted that the British conservatism is expressed in many ways, including the beliefof the British in their national currency.
The Bank of England has decided to leave the economic stimulation policy as it is. Most members of the Monetary Policy Committee believe there is no need to continue stimulating the economy.
What impact does it have on the British Pound?
What spending is the coalition government going to reduce and who will suffer from it?
The UK budget was reconsidered in spring after the coalition government came to power. The task wasn’t an easy one: to decide how and at the expense of what to reduce the deficit of 155B pounds. Another problem was a couple of banks with billions of overdue debts as they had been nationalized by the previous government in the hope of saving them from crisis.
George Osborne, the Chancellor of the Exchequer of the United Kingdom, has developed an austerity plan, which implies the biggest-scale program of budgetary spending reduction since World War 2. Within the next 5 years the government is planning:
· to reduce the budgets of most agencies and departments by 25%, which equals the destruction of 500.000 jobs
· to destroy about 40.000 military jobs (8%)
· to dismiss a certain percent of teachers and policemen
· to reduce the spending on social benefits
However, GB is not going to save on the national healthcare system. And it is planning to continue helping the developing countries.
When depriving somebody of something it is logical to give something in return. Experts believe that due to the floating currency rate of GBP and constant control over the interest rates, as well as due to liberal financial system and weak labor unions, the British labor-market is more flexible than in other European countries. Moving away from the Euro zone may favor GB within the next 5 years: despite the analytic forecasts, unemployment claims declined in October.
Low social expenses and flexible labor market still manage to keep the investment attractiveness of GB at a high level, especially for investors from the US and Japan.
Whom did the BoE Governor write a letter to?
Uncertainty about the British Pound was also confirmed by the Consumer Price Index. In October the inflation of the consumer prices made Mervyn King, Governor of the Bank o England, write an explanatory letter to the Minister of Finance, as the inflation rate had exceeded the 3.0% level for the 10th time, which was much higher than the 2% limit introduced by the Bank of England.
The weak Pound is favorable for international investors. The range of potential investment objects gets wider. From the standpoint of economic growth, common welfare and business attractiveness London is number 1 on the list of the most attractive European cities in terms of investment in fixed property, experts from LaSalle Investment Management say.
Over the last 18 months the prices on fixed property in London have risen by almost 15%, thus confirming that during the “delicate” times it is better to invest in traditional markets. Analysts consider that the insignificant decline by 0.7% over 3 months is rather “market stabilization”, which will be followed by a gradual increase in the housing prices in London.
GBPUSD: tech analysis
Since the beginning of the crisis the British Pound has failed to recover even to 50% of the pre-crisis level, as opposed to the Australian Dollar, which hasn’t managed to completely regain the lost ground as well. However, it is currently trading higher than the level of 2008.
GBPUSD has already got stuck in the flat of the W1/MN wave (1.7042-1.4228) gradually building a bullish ABC pattern of Weekly level.
GBPUSD is currently being traded at Forex close to the border of the MF sloping channel. If the price gets over it and breaks through the MF pivot (as the confirmation of the bearish sentiments) the ABC pattern will be completed, giving start to the formation of a bearish wave on the senior timeframe.
If it happens than neither government’s unprecedented measures nor the belief of the British in their currency will manage to stop the downtrend.
If the MF pivot and the MF sloping channel stand their ground, then the GBP currency rate will keep on growing within the framework of wave C of Weekly/MN, which will definitely have a positive impact on the economy of Great Britain and will make the British more confident in the future.
The flexible tax system and social maintenance system have managed to help the economy of the UK regions until now. However the forthcoming winter is going to be a hard time for the British economy. Apart from massive job destruction and budgetary spending reduction the British will face an increase in VAT by 2.5% (up to 20%) while the banks are expected to be extremely selective when giving mortgage loans. It will definitely affect the housing market and GB’s investment attractiveness.
The Department of studying Masterforex-V trading system offers you to discuss the following question:
What will be the impact of the tough monetary policy on the British Pound currency rate?
· It will provoke the growth of GBP
· GBP will lose its ground against USD and other major currencies
The tech analysis is performed by the Department of studying Masterforex-V trading system
You are free to discuss this article here: forum for traders and investors
well done
ReplyDelete