The pound rose on Monday but its modest gains reflected concern among investors about the currency’s prospects before a widely anticipated Bank of England interest rate hike this week. The Bank of England (BoE) looks set to pass a post-financial crisis milestone on Thursday by finally raising interest rates above their emergency levels set more than nine years ago.
In normal circumstances, monetary tightening might strengthen the pound significantly, but with a potentially messy Brexit nearing, the BoE may sound cautious about the pace of further moves away from it stimulus program.
With just over eight months left until Britain is due to leave the European Union, there is little clarity about how trade will flow, as Prime Minister Theresa May tries to strike a deal with the bloc.
European Union Brexit negotiator Michel Barnier rejected key elements of Britain’s new trade proposals last week. Markets are put off by the prospect of Britain crashing out of Europe without a trade deal and being left isolated.
Britain will set out ‘sensible precautions’ in a series of notes looking at how to prepare for a possible exit from the European Union without a formal divorce deal, Prime Minister Theresa May’s spokesman said on Monday.
Contracts to buy previously owned homes unexpectedly rose in June after two straight monthly declines, but the housing market remains short of properties available for sale. The National Association of Realtors said on Monday its Pending Home Sales Index, based on contracts signed last month, increased 0.9 percent to a reading of 106.9.
Pending home sales fell 2.5 percent in June from a year ago. Housing data has softened in recent months. Housing starts and building permits dropped to a nine-month low in June amid more expensive building materials and shortages of land and labour. New home sales tumbled to an eight-month low in June. House price increases are above 5 percent on an annual basis, far outpacing wage growth, which has been stuck below 3 percent, despite a robust labour market. The 30-year mortgage rate is around 4.54 percent, but still low by historical standards.
Though the weakness in housing has been mostly driven by supply constraints, there are worries that it could spill over to the broader economy, through a reduction in purchases of household items like appliances and furniture.