Sterling Supported by Upbeat Figures

Modified: Tuesday, 8 February 2011 12:30 BST - Written by John Cameron

STORY LINK Sterling Supported by Upbeat Figures

The Pound saw a near-term rally in the early part of the week as it continued to recover from poor Quarter 4 growth figures. The January PMI figure, released at the end of last week, showed that the key UK Service Sector returned to growth. Last week also saw the release of positive manufacturing and construction data, leading to commentators to predict that the recent negative growth figure does not signal the beginnings of a double dip recession.

Last night saw further encouraging UK data. The RICS house price survey released overnight showed that an increasing number of Chartered Surveyors feel that UK house prices are higher than they were 12 months ago. Last night’s BRC Retail Sales figure for January showed a year-on-year increase of 2.3%, outstripping analysts’ predictions.

With various Bank of England Monetary Policy Committee members making comments suggesting that a hike in Base Rate will be necessary in the short term, the Pound has seen support across the board. Kate Barker was the latest MPC Member to hint at an increase when she commented last week that the Bank’s failure to contain inflation is a setback to its credibility.

Given these comments and the fact that the Government’s headline CPI measure of inflation is running at 3.7%, Thursday’s Bank of England Interest Rate announcement will be more eagerly anticipated than usual. Futures markets are pricing in a slim chance of a rate increase on Thursday, however it appears highly likely that a hike is inevitable sooner rather than later, in any event.
UK Data releases are in limited supply this week with Wednesday’s Trade Balance figure and Thursday’s Industrial Production numbers being the highlights. The outlook for the Sterling looks broadly bullish.

The Pound saw some profit-taking in today’s morning session as it drew back from recent near-term highs. However, the outlook for Sterling looks broadly positive at the moment – good news if you are looking to buy a villa in Spain or a Ski Chalet in France.

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