On Thursday of last week the Bank of England kept interest rates at 0.5% and maintained the level of emergency funding at £200bn which was as expected. In the wake of strong festive sales data from John Lewis, J Sainsbury and Next; increased house prices and stronger UK consumer sentiment many feel that the UK economy has turned a corner. However, this data may be a seasonal “one-off” and consequently the Bank is adopting a ‘wait and see’ approach. The BOE also have to be wary of political uncertainty in the run up to the election. This week we saw an attempt by former Labour ministers to push Gordon Brown out. The attempt was unsuccessful but was a major factor in sterling losing ground. This week we have UK retail figures out for December which are expected to show a 2.5% improvement. Although I suspect we will see a pull back in January not least because of the snow. A reducing trade deficit is also expected for November on improved exports.

The US dollar, which sits at US$1.611/£1 inter bank, has been benefitting from the political unrest in the UK. The only respite came with the release of the United States unemployment figures at the end of last week. Against seasonal expectations unemployment increased which caught the markets by surprise. We saw the US dollar weaken and push back through US$1.60/£1 having spent most of the week below that level. But I think everyone knows that the path to recovery is going to be long and hard and far from straight forward. This week we have US trade data for November which is expected to show the deficit growing. We will also have industrial production figures and retail sales for December released which are expected to show steady progress.

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