Underlying Sterling confidence will remain very fragile as the economy continues to deteriorate, but the global risks suggest that losses should be limited from current levels.

Sterling weakened back to lows beyond 0.90 against the Euro on Monday. Sterling also failed to hold above 1.50 against the dollar and dipped to lows around 1.4810 in US trading. The currency was unsettled by the decline in risk appetite as underlying confidence remained very fragile. There were continuing announcements of substantial job losses which offset the impact of government plans to support the labour market.

The retail sales evidence remained weak with the BRC report recording an annual like-for-like sales decline of 3.3% for December which will reinforce consumer spending fears while there was a very weak BCC survey on economic trends. Sterling should still gain some support from the major difficulties seen in other global economies.

The UK November trade deficit for goods rose to a record GBP8.3bn from GBP7.6bn the previous month as non-EU exports declined and this will further undermine confidence in the economy with fears that the improved competitiveness will not have a major beneficial impact. Sterling pushing to lows below 1.46 against the dollar.