Currency Watch: Zigzag economics

The Bank of England’s Quarterly Inflation Report was everything that was to be expected.

The Bank emphasised the risks to the economy, the main one being the on-going issues in the Eurozone, and said that due to one-off factors this year’s growth projections would be difficult to predict.

It expects GDP to remain as a “zigzag” bouncing around the 0% level through the year.

It did appraise their inflation outlook higher, which has caused some analysts to moderate their views on further quantitative easing.

We would not be so quick to judge given the on-going tensions across the Channel and the insulating effect that further quantitative easing could have if the worst comes to the worst.

Despite this week’s poor unemployment numbers, consumer confidence has risen to the highest since August of last year.

This, we believe, is mainly due to consumers feeling the effects of inflation slipping while catastrophic headlines from financial markets were at a minimum during the survey period. Whether this trend lasts through the year remains to be seen.

This number helped the pound onwards versus its basket but most movement is down to the travails of the single currency at the moment.

For a week within which EU finance ministers were meant to ratify and agree upon what Greek politicians had already decided, the ball of string has unravelled very quickly.

We knew on Tuesday that the meeting had been postponed until next Monday but the substitute conference call yielded no news apart from rumour.

According to EU sources, European finance ministers are said to be discussing delaying all or part of the Greek bailout while avoiding a default.

What this means to us is that money to make sure that the bond repayment goes ahead will be paid, but nothing more and this has got to be as a result that whichever party takes over following April’s election will look to renegotiate.

The EU has asked for written agreements from party leaders that they won’t renege, but they have not been forthcoming yet. And we wonder why they find themselves in this mess.

Jeremy Cook is chief economist at World First foreign exchange