The pound started the London trading week weakly falling to a 2011 low on a trade weighted index basis and has, this morning, reached a 5 month low against the euro and a 2 month low against the US dollar.
The diminishing prospects of an early rise in UK interest rates continue to hit sentiment as the economic data out of the UK falters as the austerity measures announced over the last 10 months take effect. Yesterday, Bank of England (BoE) Monetary Policy Committee (MPC) member Adam Posen, the arch ‘dove’ on the committee who only this month voted yet again for an increase of £50 billion to the £200 billion Quantitative Easing program has again warned against an early increase in UK interest rates claiming that inflation is likely to fall to 1.5%, well within the government’s 2% target by 2012.
Posen stated “We could get inflation back to target really fast if we put the economy through the wringer”.
The continuing division within the MPC is adding to the selling pressure on the pound against all 16 of the most actively traded currencies in the market.
Meanwhile, the Centre for Economics and Business Studies reported that the average UK employee take home pay has, in real terms, fallen by 5% from 2009 due to stagnant wages and above target inflation
The Land Registry reported yesterday that average house prices in England and Wales saw an annual fall in February despite prices in London and the East of England bucking the nationwide trend. The average home in England and Wales fell in value by 1.7% in the year to February to £162,215 with house prices in London up 3.2% in the year and by 1% in the East of England. The Land Registry’s figures for England and Wales are considered to be the most comprehensive of house price surveys although the publication does lag behind other surveys.
The euro reached a 5 month high against the pound this morning despite last week’s events in Portugal which led to the resignation of Prime Minister Jose Socrates. Portuguese borrowing costs reached a euro era high of over 8% yesterday morning.
A survey by European economists showed that over two thirds of those surveyed expect Greece to default on its sovereign debt although the majority felt that the euro would survive in its current form.
Yesterday, the euro received a further boost as the ECB continued to buy Portuguese sovereign debt bonds in the market and European Central Bank (ECB) President Jean Claude Trichet reiterated the real possibility of an increase in euro zone borrowing costs as early as 7 April.