QE end will not reassure investors, says city expert

- Activity in British construction sector records a 23 month high in January -

Date: February 2, 2010

Activity in the British construction sector recorded a 23 month high in January, as jobs were shed at a lower pace and the decline in new orders was shown to have reduced. The Chartered Institute of Purchasing and Supply/Markit Construction PMI index rose from 48.6 to 47.1 in December.

Despite the positive news sterling was down against the dollar and euro this morning, from around $1.595 to $1.5920 against the US Dollar, near Monday’s one-month low of $1.5850. It fell against the euro to €1.3935 after the Eurozone’s Producer Price Index – an inflation indicator - rose 0.1 pc in December.

Mark Bolsom, Head of the UK Trading Desk at Travelex, the FX Payments Specialist said, “Today’s news, combined with the manufacturing data released yesterday, might give the Bank of England enough confidence to officially cull quantitative easing tomorrow. They are both signs that the economy is picking up, even if it’s marginal growth.

“Despite this, investors remain incredibly cautious about the UK’s economic recovery. All eyes are on the Bank of England’s verdict on quantitative easing and until then, investors will not take any long positions on sterling.”

Bolsom continues, “However, whilst the markets are expecting quantitative easing to cease, it is doubtful that its conclusion will do much for sterling in the long term, given investor concerns about our burgeoning budget deficit. If the general election results in a hung parliament, investors are extremely anxious that a split government won’t rein in the deficit decisively and quickly enough.

“In my view, if the new government doesn’t reveal a credible plan to cut the deficit quickly enough then Britain’s credit rating will be in serious jeopardy and a double-dip recession a strong reality.”

Ends

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Jessica Buttress
Head of PR for Travelex Global Business Payments UK
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Jessica.buttress@travelex.com

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About Travelex
Founded in 1976, Travelex is the world’s largest non-bank foreign exchange and payments specialist; with operations across four continents and 6,000 employees worldwide.

Travelex holds key positions in its three main areas of activity: Global Business Payments (TGBP, which includes Travelex Personal Payments), Currency Services and Card and Mobile Payments. Every year, more than 35,000 corporate clients and 30 million customers trust Travelex to manage their foreign exchange requirements.

Recently recognised by TowerGroup research as Industry Leader for payments innovation for SMEs, Travelex currently handles international payments worth £40 billion annually for over 750 large corporate and financial institutions.

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