The issue of a UK “Brexit” was still firmly in the limelight over the last week, The Bank of England governor Mark Carney warned during a speech to the House of Lords Economic Affairs Committee that ‘EU referendum risks may be beginning to manifest’. There is the possibility that a vote to leave the EU would "reinforce existing vulnerabilities" in the U.K. economy, including a risk around the U.K.'s trade deficit. Uncertainty on the supply side of the economy could increase after a UK vote to leave the EU, Mr. Carney says, "reflecting any alterations to product or labour market regulation, adjustments in labour flows or changes in the rate of technology adoption as a result of different arrangements governing foreign trade and capital flows."
President Obama waded in to the debate on Friday. Although there was little movement in the favour of the pound stemming from Obama’s comments for Britain to stay in the EU; it had underlined the weight of the argument that was shared by various global and financial leaders for Britain to remain in the EU.
The pound has lost almost 10% of its value since the Brexit referendum filtered into market pricing in November with some major banks warning of detrimental effect on GBP and subsequently the UK if a Brexit materialised
UK Average Earnings Index figures were released on Wednesday showing that earnings, in the three months leading to February, increased only 1.8% - lower than the consensus of 2.1% which was expected. Employment figures were also released reporting that the employment rate was 74.1% which was the highest recorded since records began in 1971.
The unemployment rate, the percentage of those out of work, currently seeking active employment, remained steady at 5.1%. This combination of stagnant economic activity and political uncertainty surrounding the Brexit referendum, have been seen to be having a dramatic cooling effect on employers’ appetite to hire.
The UK’s retail sales disappointed as volumes dropped 1.3% in March, compared with February and growth in online sales continued to outstrip sales from physical outlets.
A UK senior banking official said the figures showed the impact of an early Easter, as well as bad weather from Storm Katie: "The four-day Easter weekend normally brings with it bumper sales of food, spring fashion and plenty of DIY and gardening goods as families use the extra days off to spruce up their homes. "Not only did Easter come too early for people looking to refresh their spring wardrobes, but it also coincided with bad weather sweeping across much of the UK, dampening any enthusiasm for gardening equipment."
European Central Bank President Mario Draghi’s ultra-loose monetary policy, received criticism from Germany on Thursday. Draghi vowed to use all the tools at his disposal for "as long as needed" and said he believes ECB’s policy was working. The ECB kept key rates on hold and refrained from further stimulus moves.
In a staunch defence of the bank's independence from political interference, Draghi also stepped up his calls on euro zone governments to help get the region's economy on a more solid footing through fiscal policy and more ambitious reforms. Draghi said the independence of the Frankfurt-based ECB was anchored in the EU treaty.
Greece dominated the talking points at the Eurogroup meeting on Friday. Greek institutions and authorities appear to be cooperating with creditors and substantial progress has been made on a number of key areas such as pension reforms and income tax reforms. However, a conclusion was reached that a policy package should include a contingent policy that would be implemented should objectives not be reached by 2018.
Housing starts in the U.S. slumped more than projected in March, outlining that the U.S. construction industry has lost momentum heading into the busiest time of year. New home developments decreased 8.8 percent to a 1.09 million which is the lowest since October and weaker than forecast of 1.17 million. Building permits, a proxy for future construction, also dropped to 1.09 million, consensus was for an increase to 1.20 million from a previous print of 1.18 million.
Thursday saw another strong jobs boost the US economy again with jobless claims unexpectedly decreasing to the lowest level since 1973. New applications for unemployment benefits fell by 6,000 to 247,000 in the week ended April 16 indicating the US labour market remains a pillar of support in the world’s largest economy. Limited dismissals signal that employers are still optimistic about the US demand outlook.
