FOREX TRADING

Today, the U.K. will release trade balance for January in a calm day in Europe that lacks fundamentals. The British economy has shown improvement, according to the data released last week which showed that consumer confidence surged in February to a two-year high and services expanded at the fastest pace in three years.

Britain expanded 0.3% in the fourth quarter boosted by exports which jumped to 3.7% from 0.1%, while imports rose to 4.1% from 1.3%. Besides, services and manufacturing sectors are showing growth in the first quarter of 2010. However, the economy is suffering from a trade deficit, where it widened in December to the most since January 2009 as imports soared faster than exports.

Trade deficit reached 7.3 billion pounds where imports inclined 5.2%, while exports jumped 4.5% on the month. The trade gap in January is predicted to narrow to 7.0 billion pounds. Trade deficit non EU is estimated to narrow to 3.3 billion pounds from 3.5 billion pounds, while the total trade deficit to retreat to 3.0 billion pounds from 3.2 billion pounds.

Probably the reading will improve after the pound dropped nearly 2.7% versus the greenback in December and January. Growth in the coming period will mainly depend on the increase in exports after the pause of the APF program in February at 200 billion pounds. Last week, MPC members left both interest rate and APF program unchanged at 0.5% and 200 billion pounds in March.

It seems that the high inflation that rallied to 3.5% in January, the most in 14 months, caused the Governor of the Bank of England, Mervyn King, to write an open letter to the U.K Treasury stating why inflation was high above the bank’s target is capping the bank from the increasing the amount of APF to boost recovery that is still fragile.

On the other hand, government spending surpassed revenue by 4.3 billion pounds in January which makes the main concern for the U.K. in the coming period will be taming the skyrocketing budge deficit before witnessing far-reaching calamity like Greece.

The British Chamber of Commerce lowered its forecasts for 2011 to 2.1% instead of 2.3%. Also, the BoE lowered its growth forecasts to 3.2% in the second quarter next year, below the previous estimates of 4%. Still uncertainty is surrounding recovery due to the budget deficit woes and the political change that might take place in May when results of elections are announced.

Ecpulse

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