Sterling continued to trade at 8 year lows against the dollar overnight as risk aversion, fears over British and Irish banks and bearish prognostications from Mervyn King ganged up on the beleaguered pound.

Most, if not all, equity bourses were 2-3% down at some point yesterday as a pall descended over financial stocks. The news that RBS would declare losses of around £28bln, the largest loss in UK corporate history, unnerved a market short on level-headedness and long on adrenaline. The lending markets have also been hit as recent share prices have made foreign banks increasingly wary of lending to UK institutions. So what to do?

Mervyn King spoke at a CBI conference in Nottingham yesterday and made clear that, although we are not there yet, a day when ‘quantative easing’, printing money in layman’s terms could come soon. This expansion of the money would naturally prove to be inflationary but would allow a greasing of the lending skids.

The big piece of structured data yesterday was UK CPI which fell to 3.1%, the largest single in a month since 1992. Decreased oil and producer prices helped although the fall below 3% is easily explained. Normally closing down sale prices are not included due to the stock being viewed as ‘substandard’. The closing down of Woolworth’s was the exception to the rule.

President Obama was inaugurated yesterday amid much pageantry and spoke not of change but of challenges. It seems sadly ironic that a man whose hopes and dreams are so similar to those of the electorate may be shackled and pared back by the global slowdown. We wish him God speed.

Although any suggestion of economic policy in his inaugural speech was based on ideological grounds (universal healthcare, improved schools, ending entitlements and programs) he has already started to wave some power, and a chunk of the Gross Domestic Product, around. The package is likely to include a $50 billion-plus program to halt foreclosures on domestic and commercial property, fresh injections of capital into the banks and steps to deal with toxic assets clogging lenders’ balance sheets.

Data today will consist of the MPC minutes for the latest 0.5% cut alongside an unemployment report that is set to show the number of unemployed reach 2m for the first time since 1991.

The video update is available at http://uk.youtube.com/user/WorldFirstJC. Please feel free to leave comments

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