Currency Update
The weather today seems to reflect the general feelings about the UK economy. As I look outside at a damp & muggy Leeds, wondering how long this weather will persist & if my cellar will resemble a plunge pool when I get home tonight? we recognise the UK data released yesterday has a very similar feel to it.
The first bit of bad news came over the weekend with regards to Bradford & Bingley & the impact of their mortgage exposure on profits, consequently the impacting negatively on the UK financial sector in terms of value. Sterling suffer too off the back of this news opening well over a cent down against the Dollar from COB on Friday & a not to dissimilar storey as far as Sterling Euro concerned, due to risk aversion.
The PMI Manufacturing data released was weaker than expected. It was anticipated that recent sterling weakness would have increased export demand, however even though this was the case, domestic demand has fallen sufficiently to net off any export gains. Concerns in respect of future domestic demands on manufacturing will relay on how consumers react to the current down turn in the housing market.
The Bank of England mortgage approvals fell also, again the drop was more than expected. This seems to support some peoples view that lenders are being very selective over who they are lending to & the amount that they can lend, consequently the number of mortgages applications being turned away at he outset has reduced those actually going forward for approval. The knock on effect of this in the coming months will be to create further pressure to reduce house prices to sell to the few of those able to buy.
Lending against secured dwellings & consumer credit lending have declined too. To some extent this can be linked to seasonality however it seems the consumer is feeling the pinch from their winter energy bills & the ever increasing price of the weekly shop, therefore everyday essentials are this seasons must haves, as apposed to that new HD Ready LCD TV or the hand bag to go with the shoes.
These data releases would normally have the MPC geared up for a rate cut this week, however it is widely anticipated that the decision will be for No Change in order to control the dreaded inflation numbers.
Unsurprisingly yesterdays lowlights on the UK economy have helped to weaken Sterling, which is good new for all those exporters amongst you, however there appears to be little to suggest a break in the cloud for our importers.