The British pound rebounded today but we do not expect the rally to last.
The move is likely to just be corrective because UK economic data remains weak while the Bank of England is expected to lower interest rates on Thursday. The housing market remains the most vulnerable part of the UK economy and today’s drop in construction sector PMI and HBOS prices confirm that conditions in the sector remain difficult. Service sector PMI is due for release tomorrow and troubles in financial sector should limit any acceleration in activity. The UK times reports that the shadow monetary policy committee (MPC) which meets under the auspices of the Institute of Economic Affairs voted 5 to 4 for a rate cut. Their voting record has been a good leading indicator of actual MPC decisions.