Weekly Market Report - 09 March 2010
The February CIPS/Markit business surveys brought some encouraging signs on the UK economic recovery. In particular, the headline business activity index for the key UK services sector strongly beat consensus expectation, rising to its highest level since early 2007. The February business survey results should ease concerns that the UK may slip back into recession in Q1 2010, after only just managing to achieve positive GDP growth in Q4 2009.
The Halifax house price index mirrored the monthly fall in house prices reported by Nationwide last week. The index fell by a seasonally adjusted 1.5% in February, ending a run of seven consecutive monthly house price gains according to the Halifax measure.
The MPC once again voted in favour of holding interest rates at 0.5% and maintaining its £200bn stock of asset purchases. A no change move in March was widely anticipated, however many remain unconvinced that we have seen the end of QE in the UK.
The past week has been quite a volatile one for sterling interest rate markets, with the stronger than expected UK business survey data and US non-farm payrolls, along with mounting election and fiscal concerns, driving rates sharply higher at the shorter end of the curve. Strong demand for long dated Gilts at auction has underpinned Gilt prices at the long end, with yields beyond the 15-year maturity broadly unchanged on the week.
This week has already brought surprise news that the UK trade deficit has hit its widest level in 18 months, denting hopes that the lower sterling exchange rate would help boost UK exports and driving renewed volatility in interest rates. UK Industrial Production data is due tomorrow with the remainder of the week fairly quiet on the economic data front.
4 March 2010 - The Bank of England Monetary Policy Committee met today and voted in favour of holding interest rates at 0.5% and maintaining its £200bn stock of asset purchases