The pound continues to trade at multi-month lows against the majority of the 16 most actively traded currencies in the foreign exchange market yesterday but managed to avoid any further steep losses for the time being.
Some support for the beleaguered Pound came from Bank of England (BoE) Governor Mark Carney who in a speech to the Trades Union Congress in Liverpool yesterday said that the time is approaching for the BoE to start considering interest rate increases in the UK in 2015 although he admitted that current geopolitical uncertainty had the power to significantly alter the economy's course and that this could see rate hikes being put back.
Carney said "Our latest forecasts show that, if interest rates were to follow the path expected by markets – that is, beginning to increase by the spring and thereafter rising very gradually – inflation would settle at around 2% by the end of the forecast and a further 1.2m jobs would have been created. But uncertainty does not mean stasis. You can expect interest rates to begin to increase. The exact path will depend on the economy. Our assessment will undoubtedly change as the economy evolves and policy will of course be adjusted if geopolitical events have a material impact on the outlook. With inflation at 1.6%, continuing downward pressure from the appreciation of sterling, and with slack remaining, the current inflation environment is benign. But it will not remain benign if we do not increase interest rates prudently as the expansion progresses."
Howard Archer of IHS Global Insight commented that the "general tone" seemed to support the view that a very gradual increase in UK interest rates was "likely to get under way in February or soon afterwards".
Meanwhile, the Office for National Statistics (ONS) reported yesterday that UK industrial production grew by 0.5% month-on-month in July, well above analysts’ expectations.
The ONS also reported that UK manufacturing output rose by 0.3% versus the prior month, in line with analysts’ expectations although it is worth pointing out that UK manufacturing production over the last three months is still 7.6% below the levels seen in the first quarter of 2008.
Finally, the ONS reported that the UK trade deficit increased by more than expected in July with the deficit rising to £10.2 billion, the highest since April 2012. Analysts pointed towards the then strong pound as a factor so at least UK exporters will now be happier with the recent across the board falls in the value of the Pound.
Markit economist Chris Williamson said "Policymakers will be keeping a keen eye on the health of the goods producing sector. Although only accounting for just over one-tenth of the economy, factory production is a still good barometer of the overall health of the wider economy. Any signs of sustained weakness will no doubt encourage policy to be kept on hold for longer, adding to the likelihood of the first rate rise being delayed until next year."
The pound continued to trade yesterday in the foreign exchange currency market at a 3 month low against the Euro and 10 month lows against both the US and Australian dollars.