Weak UK Trade Figures Hold Back The Pound, Spain Announces Deepening Of Austerity Measures

Modified: Friday, 28 September 2012 06:34 BST - Written by David Woodsmith

STORY LINK Weak UK Trade Figures Hold Back The Pound, Spain Announces Deepening Of Austerity Measures

Somewhat perversely, Spain’s government responded to the mid-week anti-austerity protests in Madrid by announcing more austerity measures during yesterday’s session. Deputy Prime Minister Soraya Saenz de Santamaria used a set piece speech to reveal that government departments would be slashing spending by an average of 12% during 2013 – hardly what the one in four unemployed Spanish adults were hoping to hear. Those in work had little reason for solace either – public sector employees will have their pay frozen for the third year on the trot.

Even given violent protests in Spain and Greece and the threat of a bleak 2013 across the region, the euro held its ground against Sterling. By the end of Europe’s equities session, the GBPEUR exchange rate was, somewhat remarkably, holding in the 1.2500s. The visit above 1.2600 which occurred late on Wednesday and early on Thursday, proved to be short-lived. Any worrying new information which appears in today’s independent stress test on Spain’s retail banking sector could tip the balance against the single currency once again, sending the GBP EUR exchange rate higher. Market whispers suggest that eight of the fourteen banks tested have been found to be requiring additional capital to shore up their balance sheets. If these rumours prove to be well-founded, then today will be a turbulent day for the single currency.

Meanwhile, yesterday’s UK Current Account data for Q2 provided further cause for concern regarding the parlous state of Britain’s economy. The key trade figure was released at the same time as the finalised version of the UK’s Q2 GDP growth data, which came out slightly better than analysts had been anticipating. Whilst the upwardly-revised GDP figure hogged the headlines, the Current Account data slipped under the radar, perhaps fortuitously for Britain’s policymakers given that it revealed that the UK plc had imported a staggering £20.8bn more goods and services than it had exported in the three months to the end of June 2012. Politicians are apt at championing a ‘balanced’ economy and at encouraging a ‘rejuvenation’ of the UK’s flagging manufacturing sector. Yesterday’s figure illustrated what a mammoth task they have on their hands if they are to make good their promises.

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