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The weakness of the US economy was laid out for all to see on Friday with the latest unemployment report sinking to 8 month lows with a solitary 54,000 jobs being added in the month of May. This gives us very real concerns that we will see a double-dip in the US in Q3 and Q4 of this year which could see another slip in global consumption; we are still reliant on the spending power of the average US consumer. As we pointed out last week, it is not like the rest of the data from the US has been ok. Everything of late has been rubbish.

It is little better in the UK as well, and it’s not just the rain, as the pressure on the pockets of the average consumer remained strong in May with an increase in fuel prices and fears over austerity measures preventing spending and causing the service sector PMI to dip to 53.8. Alongside the poor manufacturing figures released Wednesday this number seemingly guarantees  a poor GDP number in Q2 just as the cuts start to hurt.

Following this we are amending our interest rate forecast for the Bank of England from August until February of 2012 as we believe any hike before would be to the detriment of the wider economical problems in the UK economy. The growth simply isn’t forthcoming at a rate quick enough to realistically insure against a startling drop in output. A caveat to this is should we see CPI move and stay above 5% through Q3; this may cause the MPC to hike in a bid to not look so out of touch that they are portrayed as ‘asleep at the tiller’.

As a result of this we are also revising our GBP expectations lower this week and to be the first to know what we think sign up to our webinar on Thursday. You can register here.

Elsewhere the Portuguese election seems to have been won decisively by the opposition Social Democrats with the centre-right party now charged with implementing the EUR78bn bailout program. Under the EU-IMF agreement, the new government must cut government spending my a figure of 3.5% of GDP over the course of 2011 and 2012. Unfortunately the expectation is that the Portuguese economy will likely shrink by close to 2% in the coming 2 years before a penny is cut.

The euro is strong this morning however as a result of the landslide win for the right-wing coalition and bullish noises coming from the EU/IMF/ECB troika that has just left Greece. They stated on Friday that the next aid tranche is likely to be paid at the beginning of July.

Latest exchange rates at time of writing