Stocks around the globe rose for yet another week while the US$ continued its downward trend. What made the week interesting, however was the change in direction of some variables that many had not expected. In the UK, economic growth for the last quarter of 2017 positively surprised forecasters with a rate of 0.5%, which was up from 0.4% for Q3 (and not down) and took annual growth to 1.8%, only marginally below the 1.9% of 2016 (still the worst since 2012).
This may still be too close for comfort and stall speed, but it is encouraging to note the expansion in the services and manufacturing sectors, despite the flagging consumer demand and disappointing Christmas retail results. 2.5% average wage increases were seen by some as pressure for the Bank of England to further raise rates, when actually, after inflation, the increase amounted to a 0.5% loss in purchasing power for UK consumers.
In the US it was the other way around, Q4/17 GDP growth was lower than expected, bringing the figure for the first year of Donald Trump in office to a meagre 2.3% – considerably below the 3% the president had envisaged.
Despite better upward momentum than in the UK on the back of strengthening consumer demand and sentiment, £-Sterling gained the most of all global currencies against the US$. Given there were only much smaller gains versus the Euro, it would seem that it was more the (trade) proximity to the accelerating Eurozone and the lower starting point of the UK’s currency, that allowed £-Sterling to regain its pre-Brexit referendum value against the US$.
Whatever the true reasons, the partial currency recovery will help to stem the inflation pressures on UK consumers and should the 2.5% wage growth momentum persist while inflation subsides, then there may indeed be better times ahead for the UK consumer and domestic demand.
The other surprise came once again from US politics – and it was not the fact that Washington’s politicians where once again prepared to shut down the entire US government controlled public sector in return for very little gain in political capital on all sides.
