IMF slashes UK growth forecast

The IMF has suggested the UK economy was ‘progressing slowly’ as consumers are being squeezed by high inflation, low wages and a subdued business confidence environment leading it to slash growth forecasts to 0.7% from the 1% forecast in January.IMF slashes UK growth forecastInvestors look forward to unemployment figures later today, though surveys forecast the figure to remain unchanged since last month as well as the Bank of England’s minutes of its most recent policy meeting.

After a fairly subdued performance against most of the currencies, Sterling has managed to rally against the majors to a high of 1.5370 against the US Dollar.

Unlike most other currencies which have gained considerably against the Greenback, Sterling was a bit flat after the short surge as inflation figures were published. Annual inflation was at 2.8% and the monthly figure came out at 0.3%, still way above target, revealing an increase for the 40th month in a row.

Markets are still with the view that inflation will only increase in the long term even though the Bank of England may well be close to the annual target of 2%, intermittently.

Worse than expected growth figures from China and a free fall in the gold market led markets yesterday to turn to risk aversion.

The Japanese Yen gained across most currencies and the greenback came under a bit of pressure against most currencies, as the DOW jumped up 150 points and gold gained back 2% of its recent losses.

The euro has managed to consolidate on these factors and pushed up to a high of 1.3189 against the dollar, almost 2 cents higher to a near 2 month high.

Furthermore, the ZEW economic sentiment surveys in Europe came out lower than expected, with German figures crashing from 48.5 in March to 36.3 this month and inflation was slightly above target at 1.7% for the year till March.

This has led to the IMF lowering global growth targets for most countries. European stock futures also advanced after the Stoxx Europe 600 Index posted losses for the third day in a row. US manufacturing output slipped further in March, however there was some positive news for the markets, as housing figures revealed a 7% increase as US consumer price inflation was also under control.

This has led markets to believe that the stimulus measures being taken by the Federal Reserve are working combined with inflation being kept under control.

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