UK Economic Update – 08 December 2014

UK PMI’s post some positive numbers, growth to remain robust into the close of Q4

The FTSE 100 rose by 0.4% Monday through to Monday as better economic data from the US and the prospect of further easing from the ECB propped up some of the index’s heavyweights.

This was even as oil prices fell further to close at their lowest level since mid 2009, while the likely outcome of some key economic releases from China remained uncertain going into the new week, indicating that despite a number of headwinds investors continue to hold a positive outlook for equity markets and the global economy head toward the close of Q4.

While international data was without doubt the key focus of investors on Friday the previous week was not without event for UK economy watchers.

This was as Monday marked the beginning of another round of PMI numbers emerging from the UK, which saw both manufacturing and services sectors surprise to the upside; indicating that business conditions remain healthy within their respective sectors.

In addition to PMIs, the Bank of England released its quarterly survey of consumer inflation expectations, while the Chancellor also presented the nation with a glimpse of what is to come in 2015 from a fiscal perspective.

In detail, the Bank of England survey revealed a reduction in consumer inflation expectations along with a widespread anticipation that interest rates would now remain at their current lows into the later stages of next year.

This was as the Chancellor’s budget offered taxpayers a small number of teaser measures, but nothing of any real significance.

Included in the speech was a pledge for just over £20 billion in infrastructure spending, some additional business rates relief, a clampdown on tax avoidance by banks and multinationals, as well as a further increase to the tax free personal allowance.

While something is better than nothing the Chancellor’s speech lacked the fireworks of those for previous periods, where the Help to Buy scheme and changes to the pension system were announced.

While giving with one hand, true to tradition, the Chancellor also took with the other. This was as the good news preceded what were several pointed remarks about tough choices that lay ahead in order to reduce the deficit and begin chipping away at the nation’s debt pile.

This was viewed as a clear declaration that, despite all of the shape shifting and teasers, meaningful cuts to government spending are on the way in the new financial year.

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Looking ahead

In short, the week’s events were all on the positive side. However, given the risks facing the economy (election, austerity, Brexit etc etc) as we head into the new year; it is not yet possible to say whether any of the above will prove to be of actual benefit to the average taxpayer, the Exchequer or the economy.

In relation to equity markets the FTSE 100 remains down 1.14% (FTSE 350 – 1%) for the year to date and as such, investors could be forgiven for feeling slightly disheartened or cheated, particularly in the face of the 8.23% YTD gain of the Dow Jones index in the United States.

Nevertheless, there is still hope as the evolving policy stance of the ECB will doubtless have a positive impact on the index for the full year, although admittedly; 2014 will likely prove one to forget for those with indexed (tracker) portfolios.

FTSE 100 // 10 MINUTE INTERVALS

FTSE10008DECE

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