Sterling under pressure as it falls to record low against Euro

  Darling says downturn will be “profound and long-lasting”

  Gustav fails to spur oil as prices drop back to under $110/barrel

Sterling was under renewed pressure yesterday after comments by the Chancellor of the Exchequer which were published over the weekend. Alistair Darling said that “The economic times we are facing are arguably the worst they've been in 60 years” and that
“I think it's (the downturn) going to be more profound and long-lasting than people thought." The ill-timed comments reinforced the
negative sentiment about the economy causing Sterling to drop. The pound fell to a new record low of £0.816 against the Euro and
fell to a low of $1.785 against the dollar, falling below $1.80 for the first time in over 2 years. More weak economic data did not help
the currency; mortgage data revealed that banks granted only 33,000 loans in July for house purchases, the lowest figures for at least
9 years and the Chartered Institute of Purchasing and Supply Manufacturing index stayed below 50 registering 45.9 in August from
44.3 in July thus indicating that manufacturing is continuing to contract. Following the negative commentary on the economy by
Danny Blanchflower last week and now the Chancellor Darling, sterling is likely to be under pressure in the run up to Thursday’s
meeting of the MPC.

The continuing unease helped bond prices with UK gilts rising; 2 and 5 year yields fell by over 5 bps and 10 year yields were down marginally. The market
has priced in a cut in the base rate by Nov/Dec of this year and almost certainly Blanchflower will vote for the 50bps cut that he signaled in his comments
last week. However the rest of the MPC do not appear as convinced as he is that the economy is in meltdown and the other members will vote to stay on hold.

The FTSE opened the week poorly - falling by over ½on Fridays close. Poor mortgage approvals data caused financials to drop and a fall in metal commodities
price also caused falls in mining company stocks. Oil prices fell back despite Hurricane Gustav blowing over the oil producing area of the Gulf of Mexico.
Unlike when Hurricane Katrina hit 3 years ago oil prices never rose substantially even as Hurricane Gustav looked like it could seriously damage oil infrastructure. In the end Gustav weakened as it moved across the Gulf and has not caused as much damage as was once feared. Brent crude dropped back
about $6 on the day to below $108 as oil continues to trend lower from its midsummer peak.