For the third day in a row, the Pound fell against the Euro in the foreign exchange market yesterday after the publication of worse than expected UK economic data.
The British Retail Consortium (BRC) reported yesterday that UK retail prices fell in June by 1.8% compared to a year ago, driven by cheaper electricals, furniture and clothes. This represents the biggest annual decline since the survey began in December 2006.
BRC Director General Helen Dickinson said it was “not all good news as household disposable incomes remain under pressure” adding “Interestingly, while wage rises remain lacklustre throughout the economy the squeeze on disposable incomes is not coming from retail but other areas of the economy such as leisure and recreational activities”.
Meanwhile, the latest housing data from the Halifax suggests that the UK housing market seems far from ‘overheated’ as prices fell slightly in June but annualised underlying prices continue to rise. The monthly number of home sales fell by 3% during May to fall below 100,000 for the first time in six months, although transaction numbers are still much higher than last year.
The Halifax data showed that UK house prices fell by 0.6% month-on-month in June after the increase recorded in May but the data from the Halifax showed that UK house prices are still up by 8.8% year-on-year.
Howard Archer at IHS Global Insight said "Clearly the introduction of new regulations under the Mortgage Market Review (MMR) has - at least temporarily - taken some of the steam out of housing market activity."
Meanwhile, European Central Bank (ECB) council member Peter Praet said yesterday that the measures undertaken in June by the ECB should not only help the region’s economic recovery but also avoid causing housing bubbles.
In a speech at a financial forum held in Paris, Praet said “All the measures together should support lending to the real economy, support the economic recovery and, through that avenue, steer inflation rates to levels closer to 2%. As usual, effects on the real economy will take time as the measures will need to worth their way through the economy”.
Separately, fellow ECB council member Benoit Coeure said yesterday that the idea of the UK leaving the European Union would have an "enormous shock" on the region. At a roundtable discussion in Athens, Coeure said "The UK leaving would constitute an enormous shock and [be] very difficult to manage. We are in effort to bring capital markets together, we don't need that kind of shock."
British Prime Minister David Cameron is looking to change Britain's ties with the European Union if his Conservative Party win next year’s General Election with an ‘in-out’ referendum on EU membership planned for 2017.
Overnight in the US, the Federal Reserve published the minutes from its meeting last month, which indicated that the Federal Reserve Open Market (FOMC) members seem to be looking to holding to their current policy course.
The minutes confirm that monthly bond purchases are to be cut by another $10 billion to $35 billion and plan to halt them completely by October.
Analysts suggest that although the committee seems confident enough in its assessment of the outlook for the US economy to signal the end of the purchase program, it is still too wary of the economic recovery to provide any firm hint as to when it is will start to raise US interest rates by only committing itself to suggest that the first interest rate rise should occur around the middle of 2015.