Governor King in a statement to the treasury committee stated that “powerful forces are continuing to restrain spending in the economy. Banks are actively trying to reduce their leverage. There is a long way to go in that process, and whilst it is continuing, the availability of credit to households and companies will be impaired. That, combined with the uncertainty about future incomes and profits, will make households and companies reluctant to spend.” Despite the central banks concerns previous sterling support was a sign that market participants are expecting that the MPC will leave the total of their asset purchase program at 200 billion pounds.
The level of consumer credit and the number of mortgage approvals are expected to have improved in October which would further the case that the policy makers will refrain from additional QE. Economists are also expecting that the manufacturing and service sectors continue to expand with both PMI readings forecasted to remain above 50. Therefore, we could see a return of sterling support on the improved outlook for growth and interest rates. Yet, if concerns grow that the issues in the middle east are symptomatic of a broader problem then we could see more safe haven flows into the dollar and away from the pound.-JR
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