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No-deal Brexit fears continue to pressure the pound

Fears over a no-deal Brexit sent the pound to the lowest level of the year against the dollar and euro on Tuesday, despite a series of technical notices issued by the government last week intended to assuage fears about the implications of departing the bloc without an agreement.

The pound hit levels as low as €1.099 on Tuesday but rebounded slightly on Wednesday. The currency is expected to remain under pressure until there is more clarity around Brexit.

Meanwhile, the failed US-China trade talks of last week indicated that the spat would continue, and analysts reported rumours that Trump is considering tariffs on a further $200billion of Chinese imports.

Growth in UK consumer borrowing slowed abruptly in July, according to the Bank of England. It said overall credit growth slowed from 8.8% over the previous quarter to 8.5%. Some slowdown in unsecured credit growth will be welcomed by the Bank, which said it posed a threat to financial stability.

In addition, mortgage borrowing also fell, with approval for house purchases down to 65,000 from 65,600 in June – consistent with other data that suggests the housing market is slowing.

Economist Howard Archer said that the data reinforced suggestions that consumers were becoming more cautious: “Consumers have become relatively cautious in their borrowing while lenders have become warier about advancing unsecured credit. This is welcome news given the Bank of England viewed such credit growth as a ‘pocket of risk’”.

On Friday, Nationwide Building Society reported the biggest drop in house prices in six years. The average price had dropped to £214,745 in August, down 0.5% on the previous month. Annual growth slowed to 2 per cent from 2.5 per cent the month before.

Robert Gardner, chief economist at Nationwide said prices are still likely to rise by around 1 per cent this year.

“Looking further ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates” he said. “Subdued economic activity and ongoing pressure on household budgets is likely to continue to exert a modest drag on house price growth and market activity this year, though borrowing costs are likely to remain low.”

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Main source of information: Company Report and Accounts, Bloomberg

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