Uncertainty over the Bank of England policy stance this week will tend to keep Sterling on the defensive ahead of the Thursday interest rate decision

The UK mortgage and net lending data was also weak with mortgage January lending only 10% of the levels seen in the same month for 2008, illustrating the lack of credit availability.

There will also be additional pressure on the Bank of England to announce quantitative easing at this week’s monetary meeting. The final figures from January recorded a monthly increase in M4 money supply of 2.5% for with a 17.5% annual increase, the highest annual increase since 1990.

The rate of expansion will increase the Sterling risk of any move to quantitative easing. As Wall Street weakened, Sterling dipped to six-week lows below 1.40 against the dollar, but found some support below this level and recovered back to above 1.41 on Tuesday as the dollar retreated from its best levels.

Sterling retreated back towards 1.40 later in Europe as the UK data remained very weak. The construction PMI index weakening to a record low of 27.4 in February from 34.5 previously which will increase fears over the construction sector.