The British pound (GBP) is considered to be a major currency in the Forex market. Because the British and European economies are so closely linked, the British pound and the euro enjoy a strong positive correlation.
The United Kingdom is the eighth largest economy in the world.
Trade Surplus or a Trade Deficit
The United Kingdom runs a trade deficit of $40.34 billion, giving the country a ranking of 185 out of the 190 countries tracked by the CIA in The World Factbook.
What Does Your Economy Export?
The United Kingdom exports manufactured goods, fuels, chemicals, food, beverages, and tobacco.
According to the World Trade Organization (WTO), the United Kingdom exports $352.5 billion in goods and merchandise compared to only $233.3 billion in commercial services. The WTO breaks down those exports as follows:
Goods and Merchandise
- Agricultural products: 7.4 percent
- Fuels and mining products: 14.4 percent
- Manufactures: 73.0 percent
- Transportation: 14.3 percent
- Travel: 13.0 percent
- Other commercial services: 72.7 percent
To Whom Does Your Economy Export?
The WTO ranks the following countries as the top destinations for exports from the United Kingdom:
- European Union: 54.8 percent
- United States: 14.9 percent
- China: 2.3 percent
- Switzerland: 1.7 percent
- Canada: 1.6 percent
What Does Your Economy Import?
The United Kingdom imports manufactured goods, machinery, fuels, and foodstuffs.
According to the WTO, the country imports $481.7 billion in goods and merchandise compared to only $160.9 billion in commercial services. The WTO breaks down those imports as follows:
Goods and Merchandise
- Agricultural products: 12.1 percent
- Fuels and mining products: 13.1 percent
- Manufactures: 69.9 percent
- Transportation: 17.7 percent
- Travel: 30.4 percent
- Other commercial services: 51.9 percent
From Whom Does Your Economy Import?
The WTO ranks the following countries as the top sources of imports to the United Kingdom:
- European Union: 52.7 percent
- United States: 9.7 percent
- China: 9.0 percent
- Norway: 4.8 percent
- Japan: 2.0 percent
Do You Have an Attractive Government Debt Market?
The United Kingdom currently has a Moody’s rating of Aaa. This is the only rating that the country has had in the past 30 years. This is a positive sign for the country’s government debt market.
Do You Have an Attractive Equities Market?
The United Kingdom has an attractive equities market. It is the fifth largest equities market in the world, with a total market value of $2.796 trillion.
Central Bank Mandate
The Bank of England (BOE) has two core purposes: monetary stability and financial stability.
Monetary stability means stable prices (low inflation) and confidence in the currency. Stable prices are defined by the government’s inflation target, which the bank seeks to meet through the decisions taken by the Monetary Policy Committee.
A stable financial system is a key ingredient for a healthy and successful economy. People need to have confidence that the system is safe and stable, and that it functions properly to provide critical services to the wider economy. It is important that problems in particular areas do not lead to disruption across the financial system.
The bank has a statutory objective to “contribute to protecting and enhancing the stability of the financial systems of the United Kingdom.” It does this through its risk assessment and risk reduction work; market intelligence functions; payments systems oversight; banking and market operations, including, in exceptional circumstances, acting as lender of last resort; and resolution work to deal with distressed banks.
The BOE has foreign currency reserves of $43,489 million and gold deposits of $14,067 million.
Government Intervention in Forex
The British government is not known as an aggressive currency manipulator.
Important Economic Announcements
When you are watching the economic announcements coming out of the United Kingdom, make sure that you keep your eye on the following:
- Bank of England official bank rate
- Claimant count change (unemployment)
- Consumer price index (CPI)
- Producer price index (PPI)
- Gross domestic product (GDP)
- Retail sales
- Trade balance
- Manufacturing Purchasing Managers Index (PMI)
- Halifax House Price Index (HPI)
Are You a Safe-Haven Currency?
No, the British pound is not considered to be a safe-haven currency.
How Can I Trade You?
You can trade the British pound using any of the following:
- Spot Forex
- Forex futures
- Exchange-traded funds (ETFs)
- Exchange-traded notes (ETNs)
- Spot Forex options
- Exchange-traded Forex options