The old economy boosts GBP
Well, good old British manufacturing continues to power the fragile UK economy with the PMI manufacturing index remaining at 61.5, the highest recorded since the index began in the early 1990’s (Anything above 50 signifies growth). In further glimmers of hope, UK house prices also staged a surprise recovery in January rising 0.3%, with mortgage approvals also up. Now this is not to say that the UK housing market is staging a dramatic recovery, but it does provide evidence that house prices are stabilising, which is of course positive.
Yesterday was a busy day for UK releases, with UK M4 money supply also released, which showed growth of 0.8% in January with consensus forecast only predicting an increase of 0.4%. Now, in simple terms M4 money supply is all the money in the UK system including cash and coins in circulation plus all the money held in bank accounts. It is important because it shows the growth in money supply and if this grows too fast it can cause inflation. So not exactly what the Bank of England MPC wanted to see as they deal with higher oil prices, VAT, rail fares, utility bills, commodities. Who would want to be an MPC member?
Across in mainland Europe and they have their own issues to contend with. Germany the main contributor to the European bailout fund appears to be heading for a standoff with the newly elected Irish government – who are trying to renegotiate the terms of their recent bailout. With the German public increasingly frustrated with their savings being used to support other European countries their government is taking a tough line. In addition, with Portugal’s debt interest still above 7%, a rate the government admits is unsustainable, the European debt crisis still has some way to run.
In overnight trading, the pound had given up some of its gains against the US dollar with GBP/USD trading at 1.6251. Ben Bernanke, the chairman of Fed made the first of two days of testimony to the US senate but gave little indication as to when rates were likely to rise or signal whether quantitative easing would end before June. Basically, he sat on the fence with most of his answers. The pound also remained relatively unchanged against the euro at 1.1791 with positive EU PMI manufacturing data and a bigger than expected fall In German unemployment adding positive sentiment to the Euro.