Financial spread betting in the UK has access to more than 12,000 financial markets, including shares, indices, commodities, currencies and more – even the number of sips of water taken by Chancellor George Osborne during his budget speech. Certain economic indicators have an impact on the markets followed by spread betting. It would be better to use a spread betting demonstration account if you wish to become accustomed to their effects.
The Monetary Policy Committee (MPC) of the Bank of England meets for two days every month. The interest rate set by the MPC is the basis for every other British interest rate, and has a knock-on effect on Sterling, gilts, mortgage rates and more. If the rate set by the MPC differs from market expectations, there can be a large impact on UK markets, and also on European markets, although that would be to a lesser extent.
The Consumer Price Index measures changes in the prices charged for commonly-used goods and services. The Office of National Statistics collects the prices of more than 500 goods and services from about 150 locations throughout the United Kingdom. The components of the index are weighted to take account of the importance of items, so a rise in the cost of petrol would have a larger impact than a rise in the price of bread.
If the Consumer Price Index rises and the Bank of England wishes to restrain inflation, it will raise interest rates, which makes holding Sterling more attractive, causing exchange rates to improve, whereupon a spread bet could make money. The Office of National Statistics releases Consumer Price Index figures at 8:30am around the middle of the month.
The Current Account measures the flow of all goods, services and transfer payments to and from the United Kingdom and is reported by the Office of National Statistics at 08:30am at the close of the final month of a quarter. Persistent deficits in the Current Account can cause Sterling to depreciate in value as this usually means that Sterling is leaving the country. Figures are released some weeks following the period reported, which reduces the impact of the report. The Current Account will forecast long-term changes in exchange rates.
Gross Domestic Product (GDP) is the broadest indicator of economic activity, measuring as it does the total value of goods and services produced within the country. Rising GDP reflects an economy that is improving, which is usually beneficial to Sterling. If it expands too rapidly, however, there can be an inflationary effect. It tends to be well-anticipated, but there can be significant market movement if it differs from expectations.
The Unemployment Rate is released by the Office of National Statistics every quarter around the middle of the month. People are registered as unemployed if they are actively seeking work or have found a job and are waiting to start within the next two weeks. If the Unemployment Rate is low, people have jobs and so there will be more consumer expenditure, which results in economic growth, but can again lead to inflation if it occurs in excess.
Economic indicators constantly affect markets to a greater of lesser extent and should be followed by anyone conducting spread betting.