Financial News - Sterling and Inflation Worries

The rose tinted view of financial data continues to drive the markets as more and more reasons are found to speculate on shares even as the driving impetus of the actual economy seems to be stuttering once again.

As far as I can see, much of the data over the past months has been rather less cut and dried in favour of a recovery than the headlines appear to have suggested.

For all of the economists' readings of the tea-leaves much of their conclusions have been drawn from surveys rather than core data.

Gordon Brown's duplicitous talk about the UK economy being in a better position than any other to withstand a global downturn has now been shown to be, well, simply untrue.

While the final numbers for the Public Sector debt for 2009/10 may well be less than the finger-in-the-air number of £175bn, the poor attempts by both political parties, so far, to really address the critical issue of too much state expenditure seem like Nero fiddling whilst Rome burns.

The issue may be one of increasing tax revenue but as everyone knows increasing the tax burden is an operation of diminishing returns. Unfortunately, the sacred cows of public sector spending will have to take the strain to an increasing degree.

I am less than convinced about the inflation data that we are now getting. In the past, the crying of the press over the numbers being too low has been unfounded in the face of the overall data.

I am now seeing across the board increases in food, toys, clothing, newspapers and fuel that appear to be at odds with the current near 2% level.

Many of these items rely on imported goods to stock the shelves and, with marginal growth in the rest of the globe coming through to take up excess capacity, foreign exporters seem to be less inclined to ‘cut a deal' with UK buyers to soak up the sterling weakness.

The weak pound will not be helping with the pressure on retailers. Although, as a side issue, I have been enjoying the odd spread bet on the forex markets, particularly when trading the soft UK currency.

While the press is full of ‘winter of discontent' warnings for the Government, this pressure is likely to come solely from the public sector side of the equation.

The private sector is well aware that business is not good and the rising tide of the dole queue is not something that they can do a King Canute in front of.

As such, the current administration might be in a good position to appear-to-be-strong. The impact on the economy of state employees removing their services has less of an impact on the actual GDP or Tax revenue.

A leading financial author based in the heart of London's Canary Wharf. Thomas Bainbridge is a respected commentator on the UK financial markets including the spread betting and share trading markets

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