No supermarket sweep in sight as sterling falters
BETTER than expected CPI figures released yesterday saw a temporary reversal in the recent sterling decline. Despite this, the pound remains in a broadly weak position against the major currencies. With investors lacking in any belief that Mervyn King will raise interest rates at any point soon, the pound is struggling to find a taker.
According to James Hughes, senior market analyst for Alpari, “despite the persistently high level of inflation in the UK, the collective Bank of England stance remains closer to the dovish camp that sees the rise in inflation over the last two years as temporary.” He adds, “as a result, future interest rate expectations have been downgraded significantly, pushing sterling’s yield differential within the G20 to a record low.” Hughes expects that we will see rapidly falling disposable incomes and sluggish recovery: “Already the UK has the worst growth rate in the G10, and this is unlikely to change, as ultra-low monetary policy is further undermined by acute balance sheet repair.”
Disappointing figures buffeting the pound have been coming along one after another. Figures released last week by the British Retail Consortium showed poor retail figures for May, alongside rising prices of the products on the shelves.
The figures released showed that retail sales had seen a decline of 2.1 per cent for May – compared with the same month last year – a slump after the 5.2 per cent jump in April. Stephen Robertson, director general of the consortium said: “After two previous months distorted by the later Easter and extra bank holiday, this is a more realistic reflection of how tough conditions on the high street really are.”
So where is sterling likely to head in the coming weeks and months? According to Richard Driver, currency analyst for Caxton FX, “I see sterling coming off a little this week. We have the key monthly UK retail sales figure [from the Office of National Statistics] released on Thursday, which is expected to show a 0.5 per cent contraction after April’s bumper figure. Sentiment towards the UK economy remains very weak indeed, and today’s data has done nothing to bring Bank of England rate rise bets forward from 2012.”