Sterling sentiment will remain weak, but a substantial amount of bad news has been priced in
The UK CBI retail survey indicated that sales were slightly stronger than expected in March. The expectations component was weaker and sales of durable goods was weak which continues to suggest an underlying weakening in spending. Consumer confidence also dipped further to a 15-year low of -19 in March from -17 previously which will reinforce fears over the outlook for spending while the Nationwide Bank reported a 0.6% drop in house prices for March with annual growth at a 12-year low.
Overall sentiment towards the UK currency remains weak with expectations of a series of interest rate cuts over the next few months, especially with evidence of further serious stresses in the mortgage sector. Sterling was holding around 2.0050 against the dollar in early Europe on Friday before retreating after the house-price data. Following the data, Sterling also weakened to fresh all-time lows near 0.7930 against the Euro.
The current account deficit fell to GBP8.5bn in the fourth quarter of 2007 from a revised GBP19.1bn previously which will provide some relief to Sterling, buy the 2007 annual GDP growth estimate was lowered and Sterling was unable to make any significant headway.