UK Economy Recovery and GBP's Prospect At The End of The Year

GBP's trading these days expresses cautious market. Yesterday's report mentioned that sterling hold gains on all but two of its rival currency. It reached modest gain on Euro,but down against USD. This is the mark of cautious market. The question is, till when it will go on?

GBP's trading these days expresses cautious market. At the end of last week, sterling hold gains on all but two of its rival currency. It reached modest gain on Euro,but down against USD. This is the mark of cautious market. The question is, till when it will go on?

Stilted Recovery

UK entered recession in 2008 and suffered negative growth for the next six quartals. During that time, UK became one country with highest percentage debt/GDP, as the result of huge government spending (almost 50% of GDP). In the course of recovery, UK Government declared the start of Austerity Programs in 2010. Austerity is a string of policy to reduce government spending in order to lessen budget defisit that was getting higher from year to year.

Nevertheless, the program is unable to lift UK economy. This is especially due to the Greek debt crises that dragged all of Europe with it. Instead of getting better, UK economic report continue to be disappointing. In the end, be it Sterling's value or UK economy, both were easily influenced by EU situation.

Good, but Not Yet Better

Despite of stilted recovery, 2013 seems to be the start of progress. British Chambers of Commerce (BCC) last friday said that economy report of the second half of 2013 is going to show much better growth, growth in 2014 will surpass UK's growth before recession for the first time in seven years. The growth mainly supported by household consumption and property market.

On the other hand, BCC warned that recovery can't be supported only by those two. As commonly known, increases in investments and exports which are extremely crucial for UK's economic future are still burdened by many obstacles. In November, Governor of BoE Mark Carney said that although the economy is stronger, but they won't raise interest rate yet. Chancellor of the Exchequer, George Osborne, last week once again urge the need for more welfare budget cuts, as it is one of the biggest government spending. They proved that even though UK's getting better, but it hasn't stabilized yet. This is the reason why market players are cautious toward GBP.

This week, we will see the impact of tapering The Fed versus UK's CPI Report. In economic calendar, CPI usually has strong influence. In the end, GBP's exchange rate may very well be gaining against another currency but USD. In the current climate, it is not strong enough to defend himself against the currency giant, especially if FOMC meeting is going to fulfill the market's wish for tapering.