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Saturday 22nd of August 2009
August 3, 2009

Recovery hopes lift sterling and FTSE 100


by Kay Murchie
”Recovery

Sterling and the FTSE 100 index of leading shares both rose today on the back of growing hopes for an economic recovery.

The FTSE jumped by 76.85 points to 4,685.21 - the highest level since October with Barclays and HSBC leading the banking sector after reporting first half profits earlier today.

Meanwhile, sterling climbed to $1.6879 against the dollar and also hit a one-month high against the euro.

While the pound still has a long way to go to reach the $2 mark seen a year ago, it has recovered 25% from the 23-year low of $1.35 earlier this year.

Furthermore, oil prices experienced a rise and hit $71 a barrel, as an economic recovery should lead to higher demand for crude.

In other news today, a rise has been reported in manufacturing activity. For the first time in almost 18 months, there was a growth in activity, benefiting unexpectedly from an influx of new orders - the fastest since November 2007.

The headline manufacturing purchasing managers’ index (PMI) rose from 47.4 in June to 50.8 in July. The 50.8 reading is well above economists’ expectations of 47.7 and marks a sharp rebound from the record low of 34.9 recorded in November.

The figures will lead to many believing that the worst of the recession is over.

David Noble, chief executive of CIPS, told the BBC: “The manufacturing sector has clearly pulled out of the nosedive it was in earlier this year and is no longer plummeting.”

However, there was not such good news for the housing market today after the National Housing Federation (NHF) predicted a slow recovery for house prices in England.

The body, which represents not-for-profit housing associations, is forecasting that house prices will fall by 12.2% this year and 4.6% next year. House prices will then stabilise with the organisation expecting house prices to be 20% higher than current values by 2014.

Alarmingly, the figures suggest that some homeowners could be trapped in negative equity for at least another five years.

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