Sterling fought hard to remain in positive territory against the US dollar this morning, as miserable retail sales data and further evidence of a subdued housing market underlined the difficulties faced by the British economy.
Bad weather and rising prices meant that there was no growth in sales in December, for the first time since 1991, while the volume of sales in food shops fell by 3.4%, the worst performance since 1998. Daiwa Capital Markets said that while the disruption caused by snow was to be expected, the extent of the fall suggested that other factors aside from the weather were at work, with inflation cited as an important element. The Council of Mortgage Lenders (CML) confirmed what most people expected as it said that mortgage lending in 2010 fell to its lowest level in nine years, to £136.3 billion, just over a third of the 2007 figure. The data will remind investors that the UK’s economic situation remains rocky, which will be an important consideration for the Bank of England as it mulls over this week’s inflation data. It may also dampen speculation that the BoE is about to raise rates, which would limit gains in this pair in the short term.