httpvh://www.youtube.com/watch?v=Qi2hfBoMr_8

David Cameron’s economic team were given an excellent view of where the UK economy is yesterday through the latest unemployment data and the Bank of England Inflation Report. The findings were not great.

Unemployment has risen to a 16 year high of 2.51m people with jobless claims rising by 27k in the past month. We put this down to business being unwilling to employ new people until after the election. We expect this to correct in time although it will be subject to shocks depending on the stability of the governing coalition.

The Bank of England’s Inflation Report was more bearish however as Mervyn King kept up his record of hurting the pound whenever he gets his face in front of a microphone or lectern. He and the rest of the MPC maintained that ‘downside UK growth risks’ had increased since February and that ‘budget cuts may need to be more demanding’ than previously thought. He also refused to rule out the possibility of further quantitative easing into the UK economy. This fairly rules out the view that we will see an interest rate rise here in the UK until the early part of next year.

Sterling understandably reacted negatively to this moving lower on a trade weighted basis against all the majors.

The euro received a bit of a boost from the news that the provisional GDP for the EU was slightly better than analysts expected. It printed at 0.2% vs 0.1% expected. We are still unwilling to back the euro however and believe that it will continue to lose ground in the coming weeks and months as the Eurozone struggles to deal with the problems posed by the PIIGS.

Data includes the UK trade balance measure at 09.30 and US initial jobless claims. We would expect sterling to continue to range trade today between 1.48 and 1.50 against USD and 1.17 and 1.18 against euro