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 euro sits at €1.111/£1 interbank. This coming week we have the European Central Bank meeting who are expected to keep interest rates on hold. Anything else will be a complete shock. In the euro zone, economic data released during the last week failed to push the euro in any particular direction. Consumer confidence rose to an 18 month high, German exports rose more than economists forecast yet actual consumer spending in the euro zone dropped by 1.2% in November – equalling the biggest drop on record. Against sterling the euro continues to move in a fairly narrow range awaiting some catalyst to push it one way or the other. This week we have euro zone industrial output released which is expected to show a continued improvement but it only means that the fall in output has only reduced to 7.5% rather than 11.1%. Still very high.

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