ANOTHER WEEK CLOSER TO A RATE INCREASE?
Sterling continued its rebound, adding nearly cents by midweek. It spent most of the week in a cent and a half range, starting in London this morning a good two cents higher on the week.
- No change expected from the Bank of England this week but no promises either
- No change from the RBA either
A good news, bad news set of UK housing saw Nationwide with a 0.3% increase in February and the Land Registry a touch behind at 0.2%. No problems there then but Halifax came out with a -0.9% fall, which put a dampener on Friday's proceedings for sterling. Looking beyond the percentage changes it is instructive to compare the average transaction prices in the indices. The Land Registry's average of £163,177 for January was remarkably similar to Nationwide's £161,211 and Halifax's £164,173. Rightmove, the estate agents' website, also compiles an index; it looks not at transaction prices but at asking prices. For the same month its average was £223,121. With a gap like that it is not particularly surprising that the residential property market is moving so slowly. Sellers don't want to offer 27% discounts and buyers don't want to pay 37% over the odds. The mortgage approval figures are not low only because banks do not want to lend, it is also be because the gulf between bid and offer is so wide.
The governor of the Bank of England was on the interest rate peacepath again. He told parliament's Treasury Select Committee that, whilst inflation would remain abnormally high through the coming year, "I don't believe we've yet seen significant evidence of a pickup in medium-term inflation expectation." Nor did the governor offer any hope that the economy would return to normality any time soon. In response to a question about living standards he told the committee "You may not get [a normal standard of living] back for many years, if ever." But Mr King did have some words of consolation for the pound. Although he did not agree with MPC colleague Andrew Sentance that an interest rate increase would take sterling higher he did imply that the worst of the damage is over. He saw the sell-off in 2007-08 as "a one-off re-evaluation of the likely level of sterling necessary to ensure we can achieve rebalancing of our economy" and that "we are not seeing a continuously declining exchange rate."
Among the smattering of Australian economic statistics the performance of manufacturing index (purchasing managers' index) managed to climb above the boom/bust barrier to 51.1 and retail sales went up by 0.4% in January. Gross domestic product grew by 0.7% in the fourth quarter, a better than expected result that was cancelled out by an equivalent downward revision to the Q3 number. On the negative side, the performance of services index remained in bust territory at 48.7 and building permits plunged by -15.9%.
Nothing new emerged from the Reserve Bank of Australia's board meeting. The RBA kept its cash rate steady at 4.75% and the governor's statement was uncontroversial.
In what will be another slow week for ecostats the Australian offerings are limited to business and consumer confidence, lending and employment. The employment change number on Thursday morning is predicted to show another increase of more than 20k jobs. In Britain the balance of trade and industrial production will tee things up for the Bank of England's monetary policy announcement on Thursday. No change is expected to the 0.5% Bank Rate so the event will probably be as much of an anticlimax as usual. There is an outside chance that the committee will make a move but most analysts think nothing will happen before May.
Sterling is going nowhere fast in what is now its seven-week-old horizontal channel.