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The pound ends the quarter in subdued style

Published: 1 Apr at 10 AM Tags: Pound Sterling, Euro Exchange Rate, Australian Dollar Exchange Rate, Euro Crisis, UK, Economy, Inflation,

The pound ended the first quarter of 2014 in subdued fashion after another batch of decidedly mixed data out yesterday.

The Bank of England reported that the rate of growth in the UK’s money supply fell by 0.1% in year-on-year terms during February following an expansion of 0.2% in January.

Mortgage approvals also fell in February to reach a monthly level of 70,309, down from 76,753 in January although mortgage lending actually increased by £1.7 billion during February after an upwardly revised increase of £1.5 billion in January.

Property website Hometrack reported that demand for homes far outpaced supply in the UK this month, fuelling fears in some quarters of a housing market bubble. Hometrack reported that demand grew by 6.6% in March with supply increasing by just 1.9%. Hometrack also reported that UK house prices rose by 0.6% in March, down from the 0.7% recorded in February as house price growth slowed in London and the south-east.

On Friday of last week, the Land Registry figures showed house prices in England and Wales rose by 0.7% in February in comparison with January and fully 5.3% up on the February 2013 figure. The Land Registry data also showed that UK average house prices in England and Wales have now reached £170,000 compared with the peak of £181,658 in November 2007 before the credit crunch and worldwide recession.

Next it was the turn of the Office for National Statistics (ONS) to report on the UK current account deficit which has led to some analysts question the durability of the economic recovery in the UK.

The ONS reported that the UK’s fourth quarter current account deficit came in much higher than expected at £22.4 billion between October and December 2013. This represents the second largest deficit on record after an all-time high of £22.8 billion reached in the third quarter of 2013.

More expectedly, the ONS confirmed that the UK economy expanded at a rate of 0.7% in the fourth quarter of 2013.

The ONS data also showed that the total UK economic output remains 1.4% below the pre-financial crisis peak reached in the first three months of 2008, worse than in almost all other big advanced economies.

In the US, Federal Reserve Chair Janet Yellen stated yesterday afternoon that based on the evidence available, it is clear the US economy is still considerably short of the two goals assigned to the Federal Reserve by Congress, that is achieving maximum sustainable employment and stable prices.

According to Yellen, the Fed remains with an “extraordinary commitment to stimulus measures as these are still needed and will be for some time”.

Meanwhile, the International Monetary Fund (IMF) continues to express concern over the euro zone's low levels of inflation and called on the central bank, the European Central bank (ECB) to take immediate action starting at their next policy meeting due this Thursday, 3 April.

Reza Moghadam, Director of the IMF's European Department said yesterday that the ECB still has room to cut interest rates in face of the considerable downwards pressure on inflation in the euro zone.

Moghadam said "We are not so much worried about deflation by itself, but we are very worried about what we call 'low-flation’. There is more room for further ECB easing, not least because inflation is under control."

Yesterday’s data certainly seems to support that view with the euro zone's Consumer Price Index (CPI) preliminary figure for March coming in at a 5 year low with prices falling to 0.5%, down from the already poor 0.7% registered in February increasing fears of a damaging period of deflation in the euro zone.

Overnight, the Reserve Bank of Australia kept Australian interest rates unchanged for the seventh month in a row at 2.5% despite a pointed reference by Governor Glenn Stevens to fast growing property prices.