Understanding UK Economic News

History of the GBP  

The pound sterling, which strictly speaking refers to basic currency unit of sterling, now the pound, is the currency of the United Kingdom (UK). Prior to World War II, the Great British Pound was the “world’s” currency, the most stable and widely used of all world currencies. The US dollar replaced the pound as the “world’s” currency in the years that followed World War II. 
The pound sterling is one of the world’s most widely traded currencies, along with the United States dollar, the Japanese yen, the Swiss Franc and the Euro.
It is the highest valued of the major currency units. It is often referred to as “cable”, a reference to the transatlantic cable between the United States and Great Britain.  
The United Kingdom, a leading trading power and financial center, has an essentially capitalist economy, the fourth largest in the world in terms of market exchange rates and the sixth largest by purchasing power parity (PPP) exchange rates.
Over the past three decades, the government has greatly reduced public ownership by means of privatization programs, and has contained the growth of the Welfare State.
Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with only 1% of the labor force.
The UK has large coal, natural gas, and oil reserves; primary energy production accounts for 10% of GDP, one of the highest shares of any industrial state.
Services, particularly banking, insurance and business services, account for by far the largest proportion of GDP. The industry continues to decline in importance, although the UK is still Europe’s largest manufacturer of armaments, petroleum products, personal computers, televisions, and mobile telephones. Tourism is also important: with over 24 million tourists a year, between China (33) and Austria (19.1), the United Kingdom is ranked as the sixth major tourist destination in the world.

UK Economic Releases:

Employment Situation  

This is a monthly survey conducted by the Office of National Statistics. The objectives are to divide the working age population into three separate classifications: employed, unemployed and not in the labor force, and to provide descriptive and explanatory data on each of these categories.
Data from the survey provides market participants with information on major labor market trends such as shifts in employment across industrial sectors, hours worked, labor force participation and unemployment rates. The timeliness of the survey makes it a closely watched statistic by the currency markets, as it is a good barometer of the strength of the UK economy.

Retail Price Index

The RPI is a measure of the change in prices of a basket of consumer goods.
The markets however focus on the underlying RPI or RPI-x, which excludes mortgage interest payments. The RPI-x is closely watched as the treasury sets inflation targets for the BOE, currently defined as 2.5% annual growth in RPI-x.

GDP

A quarterly report conducted by the Bureau of Statistics. GDP is a measure of the total production and consumption of goods and services in the UK. GDP is measured by adding expenditures by households, business, government and net foreign purchases.
The GDP price deflator is used to convert output measured at current prices into constant dollar GDP.
This data is used to gauge where in the business cycle the UK finds itself.
Fast growth often is perceived inflationary while low (or negative) growth indicates a recessionary or weak growth. 

Industrial Production

The Industrial production (IP) index measures the change in output in UK manufacturing, mining and quarrying, and electricity, gas, and water supply.
Output refers to the physical quantity of items produced, unlike sales value, which combines quantity and price.
The index covers the production of goods and power for domestic sales in the UK and for export.
Because IP is responsible for close to a quarter of Gross Domestic Product, IP is widely watched as it provides good insight into the current state of the economy.

PMI

Monthly Survey conducted by the Chartered Institute of Purchasing and Supply.
The index is based on a weighted average of seasonally adjusted measures of output, new orders, inventory and employment. Index values above 50 indicate an expanding economy, while values below 50 are indicative of contraction. 

UK Housing Starts

Housing starts measure the number of residential building construction projects that have begun during any particular month.
This is important data for the UK as the housing market is the primary industry that is sustaining the economy’s performance.