Nogger's Blog

29/12/10 -- The outlook for commodity prices here in the new year will be heavily influenced by the fortunes, or lack of them, of the pound. From where I am standing the immediate prospects don't look too bright.

Whilst the dollar and euro themselves are hardly shining beacons of strength, the prospects for sterling as we enter the new year look even bleaker.

Currently standing at around 1.5375 against the dollar, the pound is at three and a half month low against the greenback and stands perilously close to slipping below 1.53 to levels not seen since July.

We have unemployment now rising rapidly, with the Chartered Institute of Personnel and Development saying that 2.7 million people will be out of work before the end 2011, the highest jobless total in 17 years. That's almost one in ten of the working population on the dole as the government's enforced austerity measures start to bite.

Hefty job losses in the public sector will lead the way, combined with strikes and other social discontent as demonstrated by the nation's great unwashed recently, 2011 looks set to be a year of unrest.

Meanwhile house prices are forecast to fall as much as 10 percent next year as spending cuts and unemployment bites, along with continued tightness in the lending market.

Food prices are rising too, as we all know in this industry, and that rate of growth is only likely to accelerate given the current outlook for feed and fuel prices. Then, on top of that little lot, we have the impending VAT increase now just days away.

All of this points to significantly reduced consumer spending. The TV people can always manage to find video footage of shoppers breaking down the doors of Harvey Nicks desperate to flash the plastic on Boxing Day, but the evidence of my own eyes tells me that High Street spending has been depressed this Christmas. And I don't believe that it's all down to the weather.

Even if most of it is, retail sales figures are likely to disappoint when all the till receipts are added up in January. As the VAT increase kicks in and people become more concerned about their jobs and find a larger slice of their salaries going on food and utility bills, consumers are going to be tightening their belts in 2011.

That paints a pretty bleak picture for the UK economy, and maybe sets the tone for an enforced continuation of the existing loose fiscal policy, low interest rates and perhaps even more QE.

All of that points to further sterling depreciation ahead, especially against the likes of the Aussie Dollar, Asian currencies in general, the Swiss Franc etc where their economies are positively booming relative to our own.

A more modest decrease, but a decrease nevertheless, seems likely against the euro and US dollar too I'd say.