UK Economic Update – 08 February 2015

UK equity markets rally on oil rebound as PMI surveys top estimates

The FTSE 100 rallied by 150 points on Monday last week as oil prices underwent a rapid rebound off the back of the announcement of another large round of rig closures in the US. This boosted oil shares listed in London, lending support to an overall index that had previously been treading water slightly off from last year’s highs.

In addition to higher oil, UK PMI surveys all topped estimates during the week, prompting some to speculate that the economy could be on the edge of a rebound in the wake of a Q4 slowdown.

While this is a tempting tale to believe we prefer to wait and see whether improved sentiment actually translates into higher output during the weeks and months ahead before getting too excited.

On balance, we believe that this would be pretty unlikely given that we are now within 100 days of the most uncertain general election for several decades.

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Looking ahead

Key events for the week ahead will be manufacturing production figures which are due for release on Tuesday morning and the inflation report from the Bank of England on Thursday.

The more high impact event will be the inflation report as it is here that Mark Carney is expected to provide further guidance on the MPC’s assessment of economic conditions and the likely impact of these upon the path of interest rates.

We anticipate a less hawkish stance from the bank, with less of the “we will look through the short term impact of oil price reductions upon inflation” and a bit more of “ we feel that we are able to be patient” when it comes to the timing of a likely change in rates.  

FTSE 100 / 10 Minute Intervals

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