The pound fell heavily in trading in yesterday’s foreign exchange market after the latest opinion poll showed that Alex Salmond's campaign for Scotland to vote for independence in the upcoming referendum due on 18 September needs only three more percentage points to claim victory. With just over 2 weeks to go until the referendum vote, a YouGov poll put support for independence at 47% against 53% who say they want to remain part of the UK. Just 3 weeks ago, opinion polls put the ‘Yes for independence‘ campaign 14% behind the 'unionists'.
The pound’s sharp sell-off in the currency markets came despite some better than expected UK economic data. Firstly, the Chartered Institute of Purchasing & Supply (CIPS) and Markit reported that growth in the UK construction sector unexpectedly accelerated to register a 7 month high in August. The report stated that the increase in growth was driven by a sharp rise in activity from all three categories, housing, commercial and civil engineering.
Secondly, data showed that the number of households that have received help from the government's 'Help to Buy' scheme to buy a property now exceeds 48,390 since the launch of the scheme with more than four-fifths used by first-time buyers at an average house price of £187,800, well below the national average of £265,000. Of interest, only 6% of mortgages agreed through the schemes went on properties in London.
The day had begun with overnight news from Australia that as expected the Reserve Bank of Australia (RBA) left its key interest rate unchanged at its record low of 2.5%, a level first set over a year ago in August 2013. Of interest, the RBA seemed to suggest that interest rates are likely to stay on hold for a while.
In its statement that accompanied the rate decision, the RBA said recent data shows that the Australian economy is growing at a moderate pace with resource spending set to fall significantly but investment outside of the mining sector is improving. Overall, the RBA expects the Australian economy to grow at a below trend rate in the year ahead and strongly hinted that the most prudent course is likely to be a period of stability on its interest rate policy. The RBA also expressed concern about the weakening Chinese housing sector. As China is Australia's biggest trading partner, the outlook for China's economic growth has critical implications for the Australian economy.