The Pound remained largely subdued against the majors yesterday, although the UK currency stood firm around €1.2450 versus the Euro despite reports that UK house prices fell further than initial estimates in August as tighter lending conditions hampered sales.

According to a report from the Royal Institution of Chartered Surveyors, the number of property lenders saying prices fell exceeded those reporting gains while the average number of sales in the past quarter fell to the lowest level since the survey began in 1978.

The slump in the UK housing market has helped bring the economy to its knees and threatens to push growth in negative territory in the preliminary estimates for the third quarter and that has prompted the government to propose measures to improve home buying.

The Prime Minister, Gordon Brown, announced that the Labour Party will suspend stamp duty on homes bought for less than £175,000 and bring forward spending in an attempt to shore up the economy and bolster the property market.

Former Bank of England policy maker, DeAnne Julius, said in an interview with BBC radio that prices “will probably have to fall further” over the coming months while he also criticised Brown’s plan to revive the housing market, saying that “it would be counterproductive at this point for the government to step in an prevent the correction from continuing.”

The average price of a home in Britain declined 12.7% from this stage in 2007 to £174,178, according to a report from HBOS Plc, while the annual drop in prices was the biggest in at least a quarter of a century.

The housing slowdown has curtailed the pace of consumer spending as retail sales fell 1% year-on-year in August while the report from the British Retail Consortium preceded news that UK gross domes product failed to grow in the second quarter.

Elsewhere, the Pound also failed to find support after a report from the Office of National Statistics showed that UK industrial production declined in July to the lowest level in 18 months as oil prices rose to a record level over the same period.

The Pound remained largely unchanged at $1.7600 against the Dollar last night but the UK currency will probably fall further over the coming sessions as oil prices continue to retreat with Brent falling to a five month low in New York following reports that OPEC will maintain its production.

Crude oil for delivery in October fell a further 2.9% to $103.26 a barrel after previously falling to the lowest level since April at $101.74 and prices have now dropped an unprecedented 30% since achieving a record high of $147.27 on July 11th.

The Euro looks poised to fall through the support at $1.3840 against the Dollar this week, which would represent 50% retracement of the Euro’s rise from the November 2005 record low of $1.1640 to the all time high of $1.6038 in July, based on a series of numbers known as the ‘Fibonacci’ sequence.

The looming threat of a European recession continues to undermine the single currency and the EU are expected to cut growth forecasts this week as confidence diminishes and the risks of ‘second round’ inflation expectations increase.

The economic outlook in Europe will be largely be reliant on a rebound in overseas demand for European based goods but a separate report yesterday showed that exports in Germany fell more than initial forecasts in July to further underline the slump in demand.
Data Released 10th September

U.K 00:01 NIESR GDP Estimate (3 Months to August)

U.K 09:30 Trade Balance (July)

- Non EU

written by Adam Solomon