MARKET REPORT THURSDAY 5^th JUNE 2008

Good morning,

The Pound fell to a two-week low against the US dollar yesterday, heading towards the 1.95 level after a surprising contraction in the UK services sector and a further fall in consumer confidence underlining the continuing weakness in the economy. Sterling against the Euro remained mostly unchanged, trading around the middle 1.2600 levels. The Halifax house price survey released this morning also fell more than expected at 2.4%, with analysts only expecting a smaller drop of 1.3%. This fall is the steepest in 15 years and provides further evidence that the housing market downturn is gathering pace and heightening the dilemma faced by policymakers trying to balance slowing growth with rising inflation.

Today, the MPC will announce its rate decision at 12 noon and the majority of analysts expect the Bank Rate to be left unchanged at 5%, a view shared by 69 out of 71 economists polled by Reuters.

The key event for the Euro today will be the ECB rate decision and press conference at 12.45BST. Analysts expect the interest rate to remain on hold at 4% and in the press conference, we expect the ECB to strike a relatively strong tone, in line with recent comments from ECB members regarding the inflationary pressures.

The Markets will also scrutinise the ECB’s policy statement for any clues into whether the central bank is seriously acknowledging slowing growth or whether the focus will remain on inflation.

Data from the US today includes the initial jobless claims due at 1.30 this afternoon.

Michael Ince

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