MARKET REPORT WEDNESDAY 6^TH AUGUST 2008

Good Morning,

Sterling continued to decline against the Dollar yesterday trading down to 1.95 levels, as UK industrial production slumped for the fourth consecutive month and increased further evidence of an economic downturn. Factory output fell 0.5% in June despite initial forecasts of a 0.1% increase and the Pound also succumbed to a report on the UK service sector. An index of business confidence showed that growth in UK service industries remained negative for the fourth straight month and the reports show that the credit crisis, falling home values and record energy prices has brought the economy to the brink of recession. The monetary policy committee will make their decision on Thursday and are expected to keep interest rates unchanged amid concerns over rising inflation but the worsening economic outlook means that policy makers may have little choice but to reduce borrowing costs over the coming months.  

 The Euro declined against the Dollar yesterday towards 1.55 as oil prices continued to move below $120 and European retail sales fell in June as record high fuel and food costs left consumers with less disposable income. Sales fell 3.1% from 2007, and were more than double the 1.3% drop anticipated as the Euro-zone economy drifted closer towards a possible recession. Oil has dropped over $28 since achieving a record high of $147.27 a barrel in July, as record high fuel costs forced consumers to reduce spending. Growth in the U.S and U.K service industries contracted last month while the larger than expected drop in European retail sales means that the economy may slip into a recession in the third quarter.

Despite the reported drop in U.S service sector growth, the Federal Reserve decided to keep interest rates at 2.0% last night and indicated that with a declining labour market and concerns over the financial sector there will not be any increase in borrowing costs for the rest of this year.

Michael Ince

Archive News

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