UK Economic Update – 04 February 2015

The FTSE 100 and the pound sterling fell last week amidst a thin economic calendar, with the only release of any real substance being Q4 GDP figures, which subsequently missed expectations.

While slower growth was the predominant driver of sterling weakness, the downside pressure upon equities, although limited, was largely the result of the radical left (Syriza) sweeping to power in Greece at elections over the previous weekend.

In addition to growing political uncertainty in Europe, a number of earnings downgrades and disappointments in North America also helped to taint the mood of investors.

These have now prompted some to begin positioning for a correction across markets as the world looks once again at valuations, in light of another rebound in economic, political and geopolitical risks.

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UK PMI surveys rebound in January, concerns over Greece begin to ease in the new week

Once into the new week, both the pound sterling and the FTSE 100 began to pare losses as the January round of PMI surveys rebounded from December lows and concerns over the immediate impact of a radical government in Greece began to recede.

The bounce in UK PMI surveys follows several months of contraction which has seen activity in both the construction and services sectors fall to levels not seen since 2013. Therefore, the January numbers provide fresh hope of an acceleration of growth momentum in the wake of last week’s disappointing GDP figures.

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Looking ahead

Looking ahead, and with the current week’s data taken into account, it appears possible that the slowdown seen in certain segments of the economy over recent months may now have bottomed out.

However, as we move closer and closer toward the general election in May it is possible that unease within the business community could begin to increase, particularly in the event that any one party fails to gain a clear lead in the polls ahead of the event.

For this reason we would expect activity to, at best, moderate ahead of May although it is also quite likely that growth will continue to slow as the date approaches, leaving January PMI data looking like little more than a short term bounce.

FTSE 100 / Hourly Intervals

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