The British pound has sold off sharply against the Euro and we think that today’s weakness will continue. Mortgage approvals were much lower than expected and Nationwide house prices fell by the fastest pace in 12 years. The housing market is suffering which is expected to translate into weaker consumer confidence.
The GFK report is due for release tomorrow and the odds are in favor of pound bearish numbers. The Bank of England also announced that they will be offering emergency funds with longer repayment terms in reaction to the sharp rise in LIBOR rates. The credit markets must be very tight if the BoE who failed to act in August felt compelled to offering funding now. The only piece of good news was the CBI distributive trade survey which increased unexpectedly. Unfortunately the number was also offset by a drop in the Quarterly business balance to the lowest level since November of last year. For the time being comments from Bank of England officials continue to suggest that they haven’t made up their minds about what to do with interest rates. Lomax was on the wires this morning saying that there is still a fair amount of inflationary pressures and therefore it is hard to argue that current rates are already accommodative.