Last Week in London (26.3)

Increasing concerns over escalating tension in the Middle East led the market down at the start of the week following the Israeli killing of Sheikh Ahmed Yassin, the spiritual leader of Islamic militant group Hamas.

After a midweek rally, the market lost further ground amid mixed corporate news and the ever-present terrorist threat.

GDP growth for 2003 was revised down to 2.2% from a previous estimate of 2.3% on lower estimates for household spending.

Household spending rose 0.9% in the fourth quarter, revised down from 1.1%, while government gained an unrevised 1.9%. Fourth quarter growth rose an unrevised 0.9%. The annual rate of growth was the fastest since 2000 and is three times that of the eurozone.

The above-trend level suggests that the Bank of England will have to raise rates further as two quarter point rises have yet to have a significant impact.

Consensus expectations now are that there will be another quarter point rise in May, although following Bank of England Governor Mervyn King's recent comments that consumer spending has not yet slowed as the Bank had expected and that early action may be taken to keep inflation in check, some forecasters now expect the next rise to come as early as April.

Housebuilder Barratt Developments (+1.4% to 610p) reported a 35% rise in fiscal first half profit as demand for new homes boosted prices. Barratt's earnings have improved for 11 consecutive years as Britons invest in property.

The company believes that the market is sustainable and although it anticipates some moderation over the coming months, it is targeting output of 16,000 homes a year by fiscal 2006, from 13,000 last year.

This week sees a number of key survey releases, as well as housing data. Recent data from the British Bankers' Association suggests that consumer credit and new mortgage activity remained at high levels in February.

Meanwhile the Nationwide house price survey is likely to show continued strength in March, with double digit year on year growth, although the monthly gain may be more modest than the high 3.1% rise in February.

The GfK consumer confidence survey is expected to show a slight rebound in confidence in March, after worsening in February in response to the interest rate rise and low growth in income, which caused savings intentions to rise.

The CBI distributive trades survey recovered strongly late last year and the March data is expected to show a continuation of robust spending.

Finally, the recovery in the Purchasing Managers Institute survey of the manufacturing sector has yet to be reflected in official data and although sterling strength may dampen optimism, but recent CBI survey which pointed to a strong export recovery, suggests that the PMI survey will show a further improvement.