This [...]]]> UK economic growth- the main driver for property prices- will be slower over the next three months than previously predicted, according to a forecast from the OECD think tank.
In a survey of the G7 economies, the OECD estimated that UK gross domestic product would expand at an annualised rate of 1% in the second quarter.

This compared with an OECD forecast in November of 1.3%.

The OECD said the US economy was expected to expand by 3.4%, followed by France at 2.8% and Germany at 2.3%.

Japan’s economy would be held back by the disaster that struck the country last month, the OECD said.

Last month, the organisation cut its UK growth forecast for 2011 as whole to 1.5% from 1.7% , saying the economy faced “significant headwinds” such as spending cuts and rising commodity costs.

However, the OECD also called the UK government’s cutbacks “ambitious and necessary”, saying they were needed in order to achieve a sustainable recovery.

The latest OECD report said that the G7 group of the richest nations, excluding Japan, was expected to see average annualised growth of 2.9% in the second quarter of 2011.

Japan, however, is likely to suffer a drop in GDP in the second quarter as a result of the devastation caused by the earthquake and tsunami.

The OECD estimates that Japan’s economy might contract by between 0.2% and 0.6% in the first quarter of 2011, and by between 0.5% and 1.4% in the second quarter.

The Japanese authorities themselves estimate the disaster wiped between 3.3% and 5.2% from its annual growth, the OECD pointed out.

Despite economic improvements for the G7 bloc as a whole, the OECD warned that unemployment and inflation remains a problem.

“The majority of lenders have increased rates since [...]]]> Fixed rate mortgages were at their most expensive for six months at the start of February, according to research by financial information service Moneyfacts.
It said that lenders were finding that the cost of raising money themselves had risen in recent months, and this was being forwarded to customers.

“The majority of lenders have increased rates since the start of the year, with some mortgage deals seeing rate rises of more than 0.5%,” said Michelle Slade of Moneyfacts.

“On a mortgage of £150,000, a 0.5% increase in rate would add £42 per month to a borrower’s repayments.”

She said this rise could continue in the coming months, although it could mean better news for savers. Lenders would want to attract savers’ cash and so could start to offer better rates on savings accounts.

The Bank of England is meeting this week to decide whether to alter the Bank rate from its current record low of 0.5% as debate grows about rising UK inflation rates.

At the MPC’s December, November and October meetings there was [...]]]> The Bank of England’s Monetary Policy Committee (MPC) has kept UK interest rates on hold at 0.5%, and unveiled no new quantitative easing (QE) measures.
Both decisions were expected, but it will not be clear whether they were unanimous until the minutes of the meeting are released.

At the MPC’s December, November and October meetings there was a three way split among its nine members.

In those meetings, one member voted for a rate rise and conversely another for more QE.

However, most MPC members continue to favour keeping rates on hold to aid the UK’s economic recovery.

The most recent official figures showed that the economy grew by 0.7% in the July-to-September period, but a number of independent estimates have since said that the rate of expansion has slowed.

However, the latest official data showed that Consumer Prices Index (CPI) inflation rose to 3.3% in November, well above the target rate of 2%, led by food and furniture prices.

So the Bank faces a difficult choice – either keep interest rates low to try to aid the economic recovery, or raise them to try to cool inflation.

The Bank’s key interest rate has been at 0.5% since March 2009.

In each of the last three monthly MPC meetings, Andrew Sentance has called for rates to rise in order to cool inflation, while his colleague Adam Posen has voted for QE to be expanded.

The CPI inflation rate has now remained above the government’s 2% target by one percentage point or more for 12 months. Premature interest rate increases, while fiscal policy is still being tightened, risk derailing the recover

Meanwhile, the number of mortgage deals on offer has risen [...]]]> House prices in England and Wales are continuing to rise strongly, according to the latest figures issued by the Land Registry.Prices in April rose by another 0.2%, pushing up the annual rate of increase to 8.5%.  This was the fastest rate of growth since September 2007.

Meanwhile, the number of mortgage deals on offer has risen again to more than 2,000 as lenders continue the modest relaxation of their lending criteria.

That was a 14% increase in the number of mortgages in past month, although the proportion of them requiring at least a 25% deposit was steady at 56%.

The Land Registry said the cost of the average home in England and Wales now stood at £165,596.

Prices have been rising fastest in London over the past year.

They were up by 14.8% in the twelve months to April and put the capital’s average house price at £341,487 after an increase of 1.6% in April alone.

“While London’s annual change mirrored that of England and Wales for quite some time, the capital’s growth rate is now overtaking steadily,” the Land Registry said.

All of the 10 regions in England and Wales have seen prices rise in the past year, with the smallest increase being in Yorkshire and Humberside at just 0.7%.

Despite the acceleration of prices, sales are still very sluggish.

Last month figures from HM Revenue & Customs (HMRC) showed that completed sales had fallen by 2,000 in April to 71,000.

Although sales across the UK in the first four months of the year were 26% higher than in the same period last year, they were still nearly half the level reported in either 2005, 2006 or 2007.

It gives an average value per household of £237,000, three times the £73,000 in 1959 (at today’s prices).

The difference between household wealth and value per household is due to the rise in the number of homes since then.

There [...]]]> The total worth of UK households’ property, savings and investments, was £6.3 trillion at the end of 2009.

It gives an average value per household of £237,000, three times the £73,000 in 1959 (at today’s prices).

The difference between household wealth and value per household is due to the rise in the number of homes since then.

There were 16.7 million private addresses 50 years ago, compared with 26.6 million last year.

Of these, 22.1 million – 83% – are in the private sector with 68% owner-occupied. Fifty years ago, 72% of households were in the private sector, but only 43% were privately owned.

At its peak in 1981, the social sector – for example, council housing – accounted for 33% of homes.

House prices have risen faster than earnings over the period. Average earnings grew by 2% annually, with house price inflation at 2.7% on average.

As a result, housing wealth accounts for more than a third of assets, compared with just over a fifth in 1959.

The 1980s saw the most notable change in values, when people’s collective assets more than doubled.

Despite the steep rise in value since 1959, households were less well off at the end of 2009 than they were in 2007.
Government action

Collective wealth fell by 15% between 2007 and 2008 because of falls in the housing and share markets and despite some recovery over last year, it is still 8% below the peak reached in 2007.

The building society said that house prices in the UK had risen by 10.5% in the year to the end of April.

Prices rose by 1% in April to push the cost of the [...]]]> The annual rate of UK house price inflation has hit double figures for the first time since June 2007, according to the Nationwide.

The building society said that house prices in the UK had risen by 10.5% in the year to the end of April.

Prices rose by 1% in April to push the cost of the average home to £167,802.

However, the Nationwide predicted that the past year’s surge in prices would tail off later this year, with sellers starting to outnumber buyers.

“There has recently been evidence of a slight shift in the supply-demand balance,” said Martin Gahbauer, the Nationwide’s chief economist.

“While the recovery in new buyer enquiries at estate agent offices appears to have petered out, the last few months have seen an increase in the level of new instructions from sellers.

“All else equal, this should lead to a gradual flattening out of the recent upward price momentum,” he said.

The building society’s figures show that prices in the past three months were just 1.1% higher than in the preceding three months.

The strong rebound in house prices over the last year has taken place within the context of a subdued mortgage market

That was the slowest quarterly growth rate since June last year and reflects the fact that much of the annual increase in prices has been due to the rebound in prices that took place last summer.

The decision was widely expected by economists, who believe that any rise in the cost of borrowing could damage the UK’s fragile economic recovery.

Also as expected, the bank has not pumped any more money into the economy [...]]]> The Bank of England has kept interest rates at a record low of 0.5% for the 12th consecutive month.

The decision was widely expected by economists, who believe that any rise in the cost of borrowing could damage the UK’s fragile economic recovery.

Also as expected, the bank has not pumped any more money into the economy under its quantitative easing (QE) programme – for now at least.

Last month the Bank halted QE, having spent £200bn to boost the economy.

Under QE, the Bank has bought assets in order to boost lending to businesses and individuals by commercial banks.

But the Bank has said that the full effects of QE will take more time to filter through to the economy.

Many analysts argue that banks have not in fact increased lending as the economy begins to recover. Banks in turn argue that businesses are looking to pay down debt rather than take out new loans.

The Bank must also be wary of the inflationary pressure caused by QE.

The latest inflation figures, released last month, showed prices rising by 3.5% in January, the fastest annual pace for 14 months. This compares with 2.9% the previous month.

As a result, the Bank’s governor, Mervyn King, had to write a letter to the chancellor explaining why prices were rising so quickly.

A letter from the governor is required if inflation is more than one percentage point above or below the government’s 2% target.

However, Mr King said that the rise in inflation was temporary, and was largely the result of the rise in VAT to 17.5% in January.

The proportion reporting rises in house prices rather than falls rose to its highest level in September since the onset of the credit crunch.

But the picture is different in certain parts of the country, a poll [...]]]> A shortage in the number of people selling their homes is underpinning the rise in UK house prices, surveyors say.

The proportion reporting rises in house prices rather than falls rose to its highest level in September since the onset of the credit crunch.

But the picture is different in certain parts of the country, a poll for the Royal Institution of Chartered Surveyors (Rics) found.

Prices have been most buoyant in the south of England, the survey showed.

The proportion of surveyors reporting price rises rather than falls was at its highest since May 2007, with London and the south-east of England showing the biggest proportion.

However, more surveyors reported price falls than rises in Wales, as well as Yorkshire and the Humber.

New buyer enquiries rose in September compared with August, but the level of new instructions from sellers slipped back in the same period.

The report from Rics supports the widespread opinion in the property industry that house prices have been going up since the spring because relatively few people have been putting their homes on the market.

Despite the relative lack of sellers, there has still been a modest improvement in sales, which went up to 18 per surveyor over the past three months.

The Consumer Prices Index (CPI) measure of inflation – the labour Government’s preferred measure – fell from 1.8 per cent in July and below the 1.4 per cent expected by analysts.

Retail Prices Index [...]]]> Inflation fell less than expected in August to 1.6 per cent after rising fuel off set a decline in utility and food bills.

The Consumer Prices Index (CPI) measure of inflation – the labour Government’s preferred measure – fell from 1.8 per cent in July and below the 1.4 per cent expected by analysts.

Retail Prices Index (RPI) deflation which includes mortgage interest payments and is used as a measure for workers’ pay deals, rose to minus 1.3 per cent in August from minus 1.4 per cent in July.

Steep rises in food and fuel prices pushed CPI to a peak of 5.2 per cent last September. Price falls since then have seen the figure fall steeply. 

Stock markets were little changed as US consumer prices posted their first annual decline since 1955. Trader John Cetera of Hamilton Executions on the floor

Hopes of a [...]]]> The fledgling recovery in the US housing market appears to have stalled, reducing the chance of President Barack Obama’s “glimmers of hope” turning into green shoots any time soon.

Stock markets were little changed as US consumer prices posted their first annual decline since 1955. Trader John Cetera of Hamilton Executions on the floor

Hopes of a recovery were also damped down as the US registered its first year-on-year fall in inflation for more than half a century in March, due to falls in energy prices.

Recovery of the housing market is central to the recovery of the US economy, and the latest data puts paid to comments this week by President Obama that he saw “glimmers of hope” in the economy. His views were largely based on earlier housing surveys.

The number of US citizens losing their homes leapt by 44pc last month, as banks pursued delinquent borrowers after federal mortgage lenders Fannie Mae and Freddie Mac lifted temporary bans on foreclosures. A survey by Foreclosures.com found that 175,199 homes were repossessed by lenders in March.

In spite of major banks promising to work with troubled mortgage holders to keep them in their homes, almost 370,000 families have lost their homes so far this year.

Mortgage applications also fell last week for the first time in more than a month, suggesting that even with borrowing costs at record lows, potential house buyers are staying out of the market.

The bearish outlook was compounded by the Federal Reserve’s Beige Book, which provides an assessment of regional economic activity. It said the US economy continued to weaken in March – albeit at a slower rate – and found that the housing market remains “depressed overall”.

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That is because the purchase of government bonds by both the US Federal Reserve and the Bank of England is not helping sustain lower yields.

And it raises [...]]]> It is only a few weeks since quantitative easing programmes were launched on both sides of the Atlantic – but already the effectiveness of the measures is being questioned.

That is because the purchase of government bonds by both the US Federal Reserve and the Bank of England is not helping sustain lower yields.

And it raises the prospect that the central banks will have to increase their fire power.

The Fed has bought more than $30bn of its planned $300bn purchases of Treasury debt since the programme began late last month. In that time, after a sharp initial drop, yields have moved higher, as hefty new supply from the US Treasury continues flowing.

“The Fed’s problem is that the market realises that $300bn in Treasury buy-backs is just a drop in the bucket compared to $2,500bn in net Treasury issuance this fiscal year,” says William O’Donnell, strategist at UBS. “It’s a $300bn thumb in a dyke springing leaks everywhere.”

After falling to 2.5 per cent from 3 per cent when the Fed confirmed it would start buying Treasuries, the yield on the 10 year note is currently back around 2.9 per cent. This week’s selling of stocks has helped lower yields, but the move has been muted for now.

If 10-year US yields rise above 3 per cent, it may negate some of the recent decline in 30-year fixed mortgage rates, which are at historic lows for US home owners.

In the UK, the effectiveness of quantitative easing is also in doubt, after a euphoric start to the programme that saw benchmark yields plunge.

Yields on 10-year UK bonds have risen by about 50 basis points from a low of 2.91 per cent after the Bank of England announced plans to buy up to £75bn ($110bn) of gilts on March 5.

The increase in yields is partly due to signs of risk appetite returning to the markets, which takes away a natural support for gilts and Treasuries. The recent rebound in equity markets, amid hopes of green shoots appearing in the economy, has also put pressure on government bond prices on both sides of the Atlantic.

The rise in Treasury yields has been accompanied by rising inflation expectations as investors worry that the Fed’s outright purchases of Treasuries and mortgages under quantitative easing will ultimately spark inflation.

The expected average inflation rate for the next 10 years recently touched a six-month peak of 1.5 per cent, up from 1.1 per cent last month. Such an inflation expectation, however, is very low and dealers say supply is the main issue for the Treasury market.

The Fed’s planned purchases in Treasury debt this year is a fraction of the overall $6,000bn in outstanding debt and expected hefty supply due in the coming months and years.

Over the next month, at least $200bn in net new issuance is forecast. It means that while the Fed comes in and buys an average of $12bn a week, the US Treasury will pump more supply into the market, pushing yields higher.

For dealers, competition between the Fed and the Treasury creates a favourable trading environment at a time when dealer ranks have been thinned and bid-offer spreads are wider than normal, enhancing profits.

Trading opportunities have also flourished in gilts as dealers report that most sellers to the Bank of England have been hedge funds or bank proprietary desks. Many of these groups have sold bonds at high prices to the Bank of England and then bought them back at lower prices to book quick profits, which has no impact on the economy.

That is preventing the Bank of England from driving yields on 10-year gilts down to 2.5 per cent, a level where so-called real money accounts, such as life insurance companies, are likely to sell. It is hoped that these funds will then buy sterling corporate bonds, lowering the funding costs for UK companies and helping to stimulate the wider economy.

The rise in UK gilt yields comes amid worries that the Bank of England is not as committed to quantitative easing as dealers first thought following comments by Mervyn King, the Bank’s governor, to a parliamentary committee that the programme could be eased should signs of inflation emerge. The Bank may make further comments on quantitative easing after its rate setting meeting today.

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The plan involves the US government buying up toxic assets held by banks which will allow the banks to free up their balance sheets. At the moment the debt sits with the banks and [...]]]> Markets are on a positive feel following yesterdays outline by Tim Geithner on the Public Private Investment Program in the US.

The plan involves the US government buying up toxic assets held by banks which will allow the banks to free up their balance sheets. At the moment the debt sits with the banks and they cannot sell it on or value it, therefore the scheme aims to remove this and hopefully by doing this remove the chains that are preventing lending.

President Obama noted that the plan was a vital step but also reaffirmed that there was a “long way to go”. Wall Street experienced a significant rally; the Dow Jones gained nearly 500 points in yesterday’s session.

Data released today from the UK showed that the Retail Prices Index (RPI) fell to 0% in February from 0.1% in January- this is the lowest reading since 1960 but can be largely attributed to the fall in mortgage repayments following sharp interest rate cuts.

Another inflation indicator the Consumer price Index (CPI) rose unexpectedly to 3.2%- this could be a concern to the Bank Of England as interest rates have been slashed and Quantitative Easing introduced on the premise that inflation would continue to fall, however it does reduce the fear of deflation setting in.

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In this new world, with the Bank of England shorn of its main tool for influencing the economy, the policymakers in Threadneedle Street have to turn to unconventional tools.

Some have been tried before with differing degrees of [...]]]> Interest rates are now as close as they can get to zero without causing malfunctions in the financial system.

In this new world, with the Bank of England shorn of its main tool for influencing the economy, the policymakers in Threadneedle Street have to turn to unconventional tools.

Some have been tried before with differing degrees of success. But whatever the tool, the objective is clear: to keep Britain from dipping any deeper into recession and becoming trapped in a debt-driven deflation and depression, as the US was in the 1930s.

With no room to cut rates, the Bank must instead turn to direct means of influencing the money supply. This is important. The nominal growth rate of an economy can be no greater than the speed at which money is growing, and flowing around the economy. This famous economic equation – the quantity theory of money – lies behind the Bank’s decision to create £150bn of money.

Whether it will succeed is another question, but Thursday’s announcement means it has thrown its weight behind this new policy of quantitative easing with more weight and vigour than any other central bank in history.

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The sharp fall wiped out any optimism created by the surprise 2pc rise reported for January following a sustained period of falls.

Average house prices in February slid to £160,327, down from £194,953 in the same month a year [...]]]> UK house prices fell 2.3pc in February and by a record 17.8pc year-on-year, according to mortgage lender Halifax.

The sharp fall wiped out any optimism created by the surprise 2pc rise reported for January following a sustained period of falls.

Average house prices in February slid to £160,327, down from £194,953 in the same month a year ago. This takes average prices back to levels last seen in August 2004 and 20pc lower than the peak in late 2007.

One of the biggest problems for the housing market has been the inability among potential buyers to secure mortgages, with banks remaining risk averse and unwilling to lend. The number of first time buyers is now at the lowest level in 35 years.

While the latest mortgage approvals data suggest that activity may have bottomed out, and the Royal Institution of Chartered Surveyors has reported an increase in people making enquiries about buying a house, economists said house prices had further to fall.

Citigroup estimates that about 1.2m homeowners are now in negative equity, where the mortgage is more than the value of the house.

The Bank of England is expected to cut interest rates by half a percentage point to 0.5pc when it announces its monthly decision at midday, which will help some homeowners but further erode savings accounts.

Attention will be focused on the Bank’s plans to increase the money supply by billions of pounds by buying Government debt and other assets, details of which are expected alongside the bank rate decision.

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The 3.0% level is still well above the Bank Of England’s 2% target for inflation and this data suggests that interest rates may [...]]]> The Pound held up well yesterday as the latest inflation data confirmed that CPI fell 0.7% in January bringing the annualized level to 3.0% which is down slightly from Decembers 3.1%.

The 3.0% level is still well above the Bank Of England’s 2% target for inflation and this data suggests that interest rates may not need to be cut in March as previously thought. However inflation will remain a concern for the Bank Of England- Mervyn King has already signaled that inflation could fall sharply this year and todays BOE minutes will give us more insight to the sentiment of the MPC.

Overnight the final approval was placed on the US stimulus package of $787bn which is desperately hoped will kick start the global economy. The urgency of Obama to introduce this stimulus was justified as General Motors and Chrysler have requested another $21.6bn on top of the $17.4bn already received.

This caused a sharp sell off in equities- in particular the Dow as risk aversion kicked in.

The BoE minutes just released showed a vote of 8-1 in favour of cutting rates at the last meeting in Feb…with inflation still 1% above the target and a rallying outcry from ignored savers it will be interesting to see the next decision in March!

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This means more interest rate cuts and the ever increasing probability of quantitative easing. It seems that the Bank of England will try a plethora of measures to kick [...]]]> Lots of data yesterday in the UK, of particular interest was the Bank Of England inflation report which showed inflation at just 0.5% in two years.

This means more interest rate cuts and the ever increasing probability of quantitative easing. It seems that the Bank of England will try a plethora of measures to kick start the UK economy and bring inflation back into line.

The immediate impact of this was a sell off in sterling against the majors- sterling was not helped by employment data as the UK jobless figure rose to just under 2 million. Another hammer blow was the rhetoric by Mervyn King which stated that the UK economy is in deep recession and that GDP will fall by 4% in early 2009.

In other data from Canada- new home prices fell 0.1% which gave an annual increase of 0.4%- the lowest since 1997. In the US the trade deficit shrank by 4% in December as imports and exports fell as global trade shrinks.

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Comments from Trichet and Andrew Sentence yesterday added to the uncertainty with the former intimating a [...]]]> But neither having a materially long-term effect on exchange rates. The market perception of lower interest rates to come remains unchanged in the market but differences of opinion as to magnitude of cut and timetable are starting to emerge.

Comments from Trichet and Andrew Sentence yesterday added to the uncertainty with the former intimating a pause in ECB rate cutting whilst Sentence appeared to argue both camps for Sterling.

The traditionally arch-hawk of the committee warned of a further weakening of the manufacturing sector in the UK (this followed the report that industrial output in October had fallen by 4.9% y-on-y – the biggest drop in over 6-years) with the recession lasting longer and going deeper than had been previously forecast.

He warned however that policy makers needed to look at different methods for handling the problem implying that interest rates being continually being reduced has less and less impact going forward.

The Zew data from the Eurozone and Germany yesterday were terrible which immediately caused the Euro to tumble through 1.2800. Rumours of semi-official demand however, caused the market to pause which was enough to see it rise sharply back towards 1.3000 where it stopped and near to where we start today.

Sterling fell on the weak UK data and then was hit with the double whammy when Euro rose against the Dollar. This left the cross hitting a new all-time low below 1.1400. This afternoon’s testimony in front of the Treasury Select Committee by the Chancellor, Alistair Darling looks like the next chasm for Sterling to negotiate. Although neither party will be out to put the skids under Sterling, the conversation and comment might be viewed very nervously from abroad.

Elsewhere the Canadians did indeed cut their rates as expected but by a larger amount, 0.75%, than had been anticipated. More rate cuts to come from them in the near future. The same conclusion can be reached for Sweden following the release of the sharpest fall in inflation (down from 4% to 2.5%) in their country in 15-years. The Riksbank are expected to progress with their rate cutting programme, with a target of 1% being achieved over the next 3 policy meetings.

In the US, the extreme short end of the Treasury market remains the focus. On Monday, the 3-month bill auction was completed at a yield of a mere 0.005%, but that was surpassed by the 4-week bill sale last night. The minimum bid rate was set at 0.00% with the ‘high’ bid being established at -0.06%.

In addition, even with a zero yield, the issue was covered 4.20 times and amazingly €˜non-professionals’ took 47% of the total – the second largest participation on record. In other words, it wasn’t just dealers causing those incredible results – the non-financial market is also quite willing to accept a zero yield (or less) in return for through year-end safety.

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The overall figure is expected to show a fall in the November CPI of 0.2% with HICP at +1.7%. This, coupled with recent weak [...]]]> Data scheduled to be released today/tomorrow from the German states followed by the figure for the country as a whole, are expected to show a further profound slowdown in perceived inflation.

The overall figure is expected to show a fall in the November CPI of 0.2% with HICP at +1.7%. This, coupled with recent weak economic data, MUST push the ECB to cut rates by at least 50 basis points at their 4th December meeting.

Given this morning’s announcement from the Chinese Central Bank that they are reducing both their interest rates and domestic banks’ required reserves, “to ensure enough liquidity in the banking system to aid growth”, and following the decision from the Swiss National Bank last week to cut their rates, it looks as though we will see further BIG cuts in Official Interest Rates from all the major economies by Christmas.

The one abstainer will be Japan who do not have the scope to cut, a situation that will be mirrored in the US very soon, once their own rates get down to 0.5%.

The one bright point on the economic radar at present is the up-tick in global consumer sentiment with higher than expected figures seen from Germany, US and the UK over the past few days and from France this morning.

With consumers’ feel-good-factor largely reliant upon stock markets and fuel prices, it is the recent sharp drop in petrol prices that seems to have been the catalyst. Don’t hang the flags out just yet.

A further package of US Government / Federal Reserve assistance was announced yesterday afternoon by the soon-to-be-replaced Treasury Secretary, Paulson. He added an additional $800 billion to the already burgeoning sum in the pipeline. this takes to $ 1.7 trillion the total taxpayer funds being used to bail out America, with a further $500 billion of tax cuts in the pipeline.

It just shows just how astounded Washington is at the severity of the recession and the speed at which it is affecting the country.

Exchange rates moved consistently with the technicals yesterday with cable shying away from the 1.5500 level overnight to open 1.5 cents lower this morning. Ahead of tomorrows market closing Thanksgiving holiday in the US, expect to find exchange rates a bit subdued today. There is plenty of data from the US this afternoon but given the current state of thinking, none of it should seriously worry the markets.

The European traders will need to fill the gap between 1.5380 and 1.5520 today before they consider which way to push it. I would look for a further move higher over the next few weeks but with interest rate differentials definitely narrowing in the Dollar’s favour during the 1st Quarter 2009, expect a modicum of Dollar strength to ensue.

Keeping the Dollar under pressure in the short term, if it is correct, is a report in the Times that Middle East Sovereign Wealth Funds are switching out of investments in western markets to focus on domestic considerations.

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The CPI year-on-year rate was reported at 4.5% higher in October compared to a 5.2% annual rise in the year to September. The core CPI number (which does not include price moves [...]]]> The UK Office for National Statistics yesterday reported that the headline inflation rate had its biggest 1-month decline in the past 10 years.

The CPI year-on-year rate was reported at 4.5% higher in October compared to a 5.2% annual rise in the year to September. The core CPI number (which does not include price moves in energy, food, alcohol and tobacco) also fell, from 2.2% in September to 1.9% in the year to October.

Even though the headline figure is still well above the BoE target rate of 2%, the expectation is for similar falls to occur over the next few months. This will enable CPI to hit the 2% by spring next year. The problem then, as flagged and acknowledged by the BoE in its Inflation Report, is that the fall will not stop there and we are quite likely to see the headline rate fall to zero during 2009. This will create a whole new raft of problems for the MPC and Treasury.

This trend in prices data will be mirrored in all the major economies as lower rates and easier commodity prices filter into the respective economies. Therefore expect to see similar falls in inflation in the Eurozone, US and Canada over the coming weeks.

Officials around the globe are already beginning to douse expectations for continued large cuts in interest rates with both Trichet and the Fed’s Stern questioning the wisdom and long-term benefits of further large cuts in their respective currencies.

Today we have a fun-packed day in prospect with minutes from both the last meetings of the MPC and Federal Reserve scheduled as well as an anticipated gloomy survey on Industrial Trends from the CBI. This afternoon, prior to the Fed minutes release, we get US CPI and Housing Starts.

The CBI report is likely to make grim reading especially given the recent proliferation of downbeat Corporate trading statements. The survey number itself will undoubtedly hit a new low for this cycle (expected -41 from last month’s -31) but will remain well above the all time low for the survey of -61 recorded back in October 1991.

Trouble is that the figure is still heading the wrong way and so the question is now being asked, “Is this recession worse for British Business than the downturn in the early 90s?” This indicator MUST be watched for the answer.

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