Currency watch: economic confusion hits the UK

The huge fiscal challenge the UK faces was put into sharp contrast last week as it was revealed the UK borrowed £15.9 billion in the month of August.

Now far be it for me to judge (my inability to keep my wallet closed if Pol Roger’s Cuvée Sir Winston Churchill is available is well renowned) but £15.9bn is an awful lot of money to be talking about.

Even so, thanks to the low borrowing outputs in previous months, August’s figure left the cumulative borrowing total over the first five months of this year at £58.1bn – 6% lower than last year.

If this is sustained over the remainder of the fiscal year then annual borrowing would hit about £145bn, which would be below the June budget forecast.
 
GBP has had a fairly torrid week against the euro with the pair dipping to a four-month low as the risk premium on sterling increases the closer we get to chancellor George Osborne’s October spending review.

Consumer confidence has dipped in the interim as households are growing increasingly concerned of their own financial future and those of the UK in general, but whether this translates through to retail sales remains to be seen.

The relationship between the two indicators has broken down of late and to be honest, when I’m down, shopping tends to get me through it. In the interim I would expect GBP to regain its poise soon against the euro while also adding weight against the US dollar.

Jeremy Cook, chief economist at World First, 01.10.2010