Is Britain's economy in trouble?

 

There are multiple videos on Youtube.com recently indicating UK economy is in trouble and about to collapse.

UK has not been stable since their exit from the European Union. Liz Truss is the third prime minister in line after Terresa May and Boris Johnson. Strategically, I did not see a very specific direction set for the country since the break-up, with only a single policy unchanged, that is follow the US lead, not only that be US poster boy.

" How do you know?" You might ask. That is a good question.

There are 4 elements in in marketing call the 4 Ps: place, promotion, prices and personal selling. A seasoned marketeer will make use of any of the 3Ps for their strategy and Price is the last choice on their list. when you move to price strategy, you are out of option.

when the first thing Truss promised for her premiership is to cut tax, it is already clear that there is nothing she can offer to the people, and the only thing to do is to cut price, and in this context cut tax.

Personally, cutting tax is the worst thing one can do. It means lesser capital to run programs in the country including infrastructure maintenance, national security such as military, law and order and safety, as well as nation building such as education, training, business support and health.

I still recall my time in UK during the 90s, when I stayed in one of the poorest cities of England, Bradford. Its wool industry has just collapsed, and the city council was with little fund to run the city. The place was very gloomy and run down with little option of growth. It was a sorry sight.  

I went back with my wife in 2001, I wanted to show her the university that I was proud of. The city it seemed has taken a turn to the worse. At one point, my tears rolled out of my eyes, not able to accept the state which Bradford has reached.

Anyway, enough of divergence. Truss strategy to finance her policy turned out to be issuance of bonds, which means increasing the country's debt! When this did not settle well with the market, they further claim that they can also print more money to support the country's need. they are definitely the biggest fan of the US.

So how is UK doing economically?

 We first look at its currency since it was much affected by Truss political gimmick. However, I will not compare it to USD as USD is rising against all other currencies. I have to compare it against a more related currency, I will use EUR.

Fig 1. GBPEUR Monthly Chart

From the monthly chart, it does not look good on GBP. We can see frfom the chart that it dropped from a high of EUR1.50 in 2007to a low of close to parity in 2009. Although it managed to strengthen till 2015, its decision to leave EU again caused it to fall till 2017 when it started to congest till this year.

At present it is resisted by a series of moving averages, tested and retreated from the 144-month moving average. However, its behavior thus far resembles that of a counterwave with bars overlap.

We can derive 2 zig zag patterns from its movement. Using the movement between 2007 till 2015, I will expect support level at between 1.1237 to 0.9274. This is evidence from its repeat congestion for years between 1.10 to 1.20.

In addition, another zig zag is visible. The support level from this is even lower at between 0.97865 to 0.8302.

The support levels is not looking good for GBP as it is going to be weaker still comparing against EUR.

Let's get closer then as the short-term target may be more important.

Fig 2. GBPEUR Weekly Chart
With a closer look, there are another 2 zig zag, the most recent one has already been reached. So let's focus on the larger picture. Measuring with this set up, the support level found to be between 1.12289 to 1.06360.

However, it may seem that the 1.12289 support is strong as a potential reversal (inside the circle) on this pair, breaking the fall and pulling it back into the Bollinger band. We might see a damp in its descend in the short run before it makes another leap up-ward. 

So it is a good thing for Truss to U-turn on her tax cut policy.

What about the economy then? I will look into the FTSE.

Fig 3. FTSE Weekly Chart

The thing with FTSE is that while it is at the top at the moment, it fails to achieve a new high against the previous peak in 2018. In fact, its momentum starts to taper off and presently testing the neckline at 6,788. If it breaks this line, we are likely to see an objective of 5,889.

If based on the zig zag measurement on the other hand, it will not be easy for FTSE, support level is between 5,964 and 4,898.

However, for these levels to be realized, the neckline has to be crossed. For the time being, I believe it is highly possible since it has already broken through the moving averages, return to test and resisted.

Well, UK is still not at its worst presently, but the future is gloomier as it seems.