NO SURGE BUT STERLING SURVIVES Investors fret about falling UK house prices Another strong Australian employment figure fails to make up for earlier losses by the AUD A range of more than three cents took sterling from low to high in little more than 24 hours, whereupon it promptly gave back half the gains. Sterling hovered for the next two days but set off lower this morning. It was carrying a net one-cent gain when London opened this morning but looking very uncomfortable. The economic data were not at all unkind to sterling. October's -0.2% slippage in industrial production was not the stuff of legend but the annual 3.3% increase was tolerable. Manufacturing production (industrial production minus energy and mining) scored a perfectly decent 0.6% monthly increase and was 5.8% higher over the 12 month period. The Confederation of British Industry's industrial trends survey was similarly positive for the manufacturing sector. Its monthly survey revealed 32% of manufacturers predicting a rise in output in the coming quarter, and 19% a fall, making a balance of +13%. The -£8.5 billion trade deficit in October was very much business as usual and the producer price index showed factory gate prices rising more slowly at 3.9% a year while manufacturers' costs were up by more than twice as much at 9.0%., further squeezing gross profits. The National Institute of Economic and Social Research (NIESR) gave the pound a helping hand with its estimate that the UK economy grew by 0.6% in the three months to November. There were no surprises from the Bank of England's Monetary Policy Committee. It left interest rates unchanged, with the Bank Rate at 0.5% for a 22nd month, and there was no extension of the quantitative easing (QE) Asset Purchase Programme. There were no surprises among the various house price indices either but that did not make them more palatable to investors. The Halifax index, which looks at actual sales, logged a -0.1% fall in November, with the average price dropping to £164,708. Rightmove's index fell by -3.0%, taking the average asking price down to £222,410. The big gap between asking prices and transaction prices suggests further price falls are in the pipeline as sellers begin to realise why their property is not moving. There were no surprises from the Reserve Bank of Australia either. After last month's unexpected cash rate increase from 4.5% to 4.75% nobody really expected the RBA to lay an another hike this time around. What did raise eyebrows, though, was another set of stonking employment figures. The rate of unemployment went back down to 5.2% (analysts had been taken aback by the anomalous spike to 5.4% in October) and another 54,600 people found jobs. Participation - the proportion of people who could work that do work - went up from 65.9% to 66.1%, a new record. A positive interpretation of the participation figure is that confidence in the economy is high. A cynical one would be that houses are so unaffordable that every member of the family has to pitch in with an income. With little to rouse investors from the pre-Christmas torpor that is now settling in, sterling was one of a handful of currencies that outperformed the euro by less than 1.0% over the week. It did nothing particularly badly, simply ticking over as it waits for Santa and taking advantage of the euro's infirmity. If previous seasonal slowdowns are anything to go by the somnolence will deepen, turning to catatonia next Monday. There are possible triggers this week, notably the meeting of EU heads of government. There are also UK inflation and employment figures, both of which have the capacity, under the right circumstances, to nudge the exchange rate. Having thrown that straw, last week's stability suggests this week will bring more of the same unless something messy hits the ventilator. The seasonal slowdown is not a myth: Active investors tend to tidy their positions ahead of the illiquid holiday period and keep their heads down to avoid any unnecessary pre-Christmas damage.