A day of two halves

The pound initially fell heavily yesterday morning after data released from the British Retail Consortium (BRC) showed that prices in UK shops fell for the fifth month in a row last month as retailers offered bargains to get shoppers through their doors.

The BRC data also showed weaker than expected September retail sales figures following an equally disappointing result for August. The figures are likely to be seen as a further indication that consumers remain under pressure despite signs of a nascent UK economic recovery.

In the afternoon, the International Monetary Fund (IMF) released a report showing that it has upgraded its growth forecast for the UK economy amid what it called "welcome signs" of a pick-up in activity following the global crash of 2008. As recently as July, the IMF revised its forecast for the UK economy, forecasting growth of 0.9% for the year and of 1.5% in 2014. This was up from the previous prediction in April of 0.6% for 2013. In yesterday´s World Economic Outlook, the IMF predicted that the UK economy would grow by 1.4% in 2013 and another 1.9% in 2014.

The International Monetary Fund added that it is still urging Chancellor George Osborne to boost spending on the UK’s infrastructure despite its upward revision of its growth forecast for the UK economy.

With no further progress in finding a resolution to the now 8 day old US government shutdown nor in raising the US debt ceiling before the 17 October deadline, the dollar remains under pressure.

Meanwhile, US President Barack Obama is reported to be ready to nominate current Federal Reserve Vice Chair Janet Yellen to replace Ben Bernanke at the head of the Federal Reserve at the beginning of 2014 when Bernanke’s second term ends. If confirmed, Yellen will become the first female Fed chief in the monetary authority's 100-year history.

Markets should welcome the news as Yellen is generally seen as a monetary dove and be expected to continue Bernanke's current policies along the same lines.