The British pound finally snapped its aggressive sell off today with a round of economic data and second-hand comments that provided some respite to speculative fears. On the docket, we had a long list of releases to factor in. For scope, the final reading of the 2Q GDP was the most important.
The uptick in the quarterly figure to a 0.6 percent contraction was in line with expectations; but the annualized 5.5 percent reading would unexpectedly keep the measure at its worst pace on modern record going back to 1956. Notable revisions in the component data included a 0.6 percent slump in services (previously unchanged) and a moderating 0.8 percent drop in manufacturing (which was originally a 2.2 percent dip). More timely data was just as mixed. The second quarter current account balance ballooned more than expected to 11.4 billion pounds – its largest shortfall since 2007 and 3.3 percent of GDP. The proprietary CBI Distributive Trades report for September – essentially a retail activity gauge – rose to its highest level in five months with those respondents reporting a year-over-year increase in sales outpacing those that reported declines by 3 percent. Credit health was another theme for the session. Mortgage approvals for August were just off an April 2008 high – which was set in the previous month with today’s revision. Alternatively, net consumer credit reported a new record contraction of 300 million pounds, highlighting the struggle that a recovery will be. With so much contradictory data, why was the sterling so strong? In the end, it was commentary that would bolster the struggling currency. A seminar hosted by BoE Deputy Chief Charles Bean gave market participants a progress report on the bank’s efforts to revive the economy. Attendees offer a second hand account of the event saying the policy authority was not on the verge of cutting the deposit rate and there they expressed surprise and concern over the speculation in response to Governor King’s recent comments.
