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The Week In Hindsight, 07 March 2014

The UK economy underwhelmed its audience once again this week following what has been a slow start to the year in terms of economic data. Both manufacturing and services PMI’s, each key pieces of data, appeared to have stalled at their January levels following two months of back peddling. The cyclical construction PMI also missed expectations by a wide margin.

Despite disappointments from the major economic barometers, and on a slightly more positive note, UK mortgage approvals reached a six year high during February according to a survey by the Bank of England. In addition to the BOE data, the Halifax House Price Index showed increased funding availability continued to drive prices higher throughout the month.

The survey indicated that the value of the average UK house rose by 2.4% in February, bringing the total price gain over the period Feb 13 – Feb 14 to 8.7%.

Despite the cooling of data emerging from the economy, our outlook relating to the UK for 2014 remains positive and unchanged. We continue to feel that what both the UK and US economies are currently going through, in terms of soft data, is a corrective phase which often follows naturally from a period of consistently accelerating growth.

The next major event for the UK economy is the quarterly Inflation Report Hearings in Parliament. BOE governor Mark Carney and several members of the MPC are due to update law makers on both the inflation outlook as well as developments within the general economic environment for the UK. The session will cover the previous quarter’s economic data and shall no doubt include some form of updated guidance relating to interest rates. Another round of UK unemployment data is also due the following week.

GBP gains on interest rate expectations; 8 percent against the US dollar and 13 percent VS the Japanese yen throughout the six months since September 2013