The CBI has predicted the UK economy will contract by 3.9% in 2009, more than twice the amount predicted by Alistair Darling late last year. The euro has reached a one month low against the dollar amid concerns that the ECB is not doing enough to safeguard the ailing eurozone economy and US leading indicators released today are expected to show signs of recession easing in the US.

Pound Sterling - UK Markets

Sterling has lost ground against its major currency partners this morning, having declined over 1% against the US dollar and Japanese yen as the looming budget puts pressure on the pound.

The CBI have predicted the UK economy will contract 3.9% in 2009 with a total economic contraction of 5.1% by the end of the recession. This is more than twice the decline predicted by Alistair Darling in his pre-budget report and Wednesday’s budget is expected to downgrade economic forecasts while highlighting increased government borrowing. However recent economic news shows the pace of decline is slowing in both the US and UK and the CBI expects the economy to return to positive growth by the second half of 2010. While the pound remains weak internationally, this could aid recovery through more competitive pricing and there is a reported 1.8% increase in house prices in March. There is no major data released in the UK today.

US Dollar - US Markets

The dollar is stronger this morning, reaching a one month high against the euro and gaining over 1% on the pound after a better than expected performance from Citigroup on Friday boosted Wall Street and global equities. Citigroup reported a profit of USD1.6 billion, its first in nearly 2 years and this improved market sentiment and added to the view that the US economy may be taking its ‘first steps’ towards recovery.

Today Bank of America, Google and Yahoo are to release corporate earning figures and this could lead to a further revival of risk appetite. The leading indicators index is also out today and this is expected to show an easing of recession in the US as Federal cash injections and lower interest rates are work to boost spending and investment. Consumer confidence figures and jobless claims are due out later in the week.

Euro – European Markets

The euro has declined against the US dollar and yen this morning but improved against the pound ahead of the UK budget due on Wednesday. Dropping below 1.3 versus the US dollar, the euro has reached a one month low amid concerns the ECB is not doing enough to protect the eurozone economy. The euro has also hit a 3-week low against the yen.

As the US and UK economy are starting to show signs of the recession easing, the decline appears to be deepening across the eurozone and this, along with mounting concerns over the effectiveness of the ECB is placing the euro under pressure. Comments from ECB members Axel Weber and President Trichet last week also increased speculation of further interest rate cuts. There is no major data released in the eurozone today with Germany’s producer price index and ZEW economic sentiment survey out tomorrow.

Other Currencies - Highlights

Currency exchange rates for the Australian and New Zealand dollars continue to shadow investor appetite for risk. After reaching a 6-month high against the euro on Friday with news of Citigroup profits, the Aussie and Kiwi dollars have slumped this morning with rumours of splits in the ECB leading investors to favour the safe haven currencies. Figures out this morning show Australian producer prices fell 0.4% in the first quarter of 2009 and are running at a 4% increase on the year.

The yen continues to strengthen despite declining export figures and the deteriorating Japanese economy. The Bank of Japan is expected to slash economic forecasts this week as consumer demand collapses and the Japanese economy is expected to contract by 4.2% in 2010. Japan’s leading economic indicators and Canadian foreign investment figures are released today.

Not exactly unexpected news this morning, but for the first time since 1997 the UK unemployment rate has risen above two million.

According to the National Statistics Website, the number of jobs in December 2008 was 31.32 million, down 203,000 on the quarter and down 284,000 over the year. This is the largest quarterly fall in jobs since September 1992. Most sectors have shown falls in jobs over the quarter with the largest fall occurring in finance and business services (down 102,000).

They also reported that the unemployment rate was 6.5 per cent for the three months to January 2009, up 0.5 over the previous quarter and up 1.3 over the year. The number of unemployed people increased by 165,000 over the quarter and by 421,000 over the year, to reach 2.03 million. The unemployment level and rate have not been higher since 1997.

Separate reports released by the British Chambers of Commerce (BCC) and CBI have both predicted that unemployment will rise above around three million in the later parts of 2009 and into 2010.

Although the news is not really a massive surprise for any of us, it is a clear indication of the struggle the country is facing with respect to keeping business flowing and people in jobs.

But, we do have to look at the bigger picture in this report. In December 2008, employment was standing around 31.32 million, which is still the large majority of this countries work force in employment. When you look at the figures, they do look worrying and deeply disturbing, but when you take into account that even if the unemployment rate does rise to 3 million next year, will still leave, at this moment in time, 30 million people still in work. Or, out of 100% of the nation’s work force, 92% should still be employed in 2010, if current reports are anything to go by.

When you compare this to other countries, the UK is actually doing quite well, despite recent indications that the UK is going to be hit the hardest by the current recession and economy downfall.

Anybody currently facing redundancy, going through it or looking for a new job after suffering it will of course see things very differently, and quite rightly so, but in the grand scheme of things, well over 20 million people out of a work force of around 25 million people will still be bringing home a wage packet for the rest of the year and beyond.

And with news of various supermarkets and fast food outlets looking to create thousands of jobs within the next few years, we should see a few more of the unemployed being able to find a job, albeit depending in your area and skill set.