The Week In Hindsight, 01 August 2014

A quiet week for UK data saw both London equity markets and sterling driven to and fro by events in other corners of the globe, with each closing lower for the period on Friday. Outside of some minor housing related figures the headline act on the calendar for the week was July’s Manufacturing PMI which missed estimates, prompting some to suggest that the recovery could be cooling.

Friday’s manufacturing number comes ahead of a busy week for UK economic data, with Services and Construction PMI’s both expected over Monday and Tuesday. Each are forecast to remain relatively stable, with Construction activity due to cool slightly while another acceleration has been projected in ONS figures for the Services sector.

The monthly BOE interest rate and asset purchase decision is scheduled for Wednesday, with no change expected. There is currently no policy statement set to accompany the release.

Our view remains that the UK economy will continue to grow at an above trend pace throughout the remainder of 2014, supporting expectations for the interest rate argument among observers to grow louder still.

In relation to rates, the near – medium term direction of inflation remains unclear but will be a key determinant of when the BOE makes its first move. While low inflation persists, we believe that the MPC will be happy to allow further time for wage pressures to increase from their current 13 year low; implying a Q1/Q2 2015 increase.

If CPI extends its June rebound and persists at levels closer to 2%, then the argument for an earlier increase becomes more valid; which would imply higher levels in sterling based currency pairs and potentially lower levels for UK equities.

GBP/USD & GBP/EUR

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FTSE 100

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