Last week in London

The London market ended the week flat overall last week, as large cap gains were offset by weakness in mid and small caps, says Quentin Smith, at Old Mutual Asset Managers in the UK.

Producer prices fell 0.1% in January from December, giving a year on year rise of 2.6%, down from 2.9% the previous month. Expectations were for a 0.2% rise in the month and a 2.9% rise on the year. Petroleum product prices fell 2.4% on the month and rose by 8.6% on the year.

Consumer prices rose a larger than expected 1.6% year on year in January, boosted by higher costs of food, utility bills and financial services. This was the same annual rate as the previous month and is the highest since June. On the month consumer prices fell 0.5%, following a 0.5% gain in December.

The Royal Institution of Chartered Surveyors’ index of house prices rose in January to its highest in four months, suggesting that the pace of decline in the property market is easing.

The proportion of estate agents and surveyors reporting an increase in prices, less those saying prices fell, was -36%, the strongest since September's reading of -29% and compares with -38% in December.

The housing market is showing signs of steadying as the central bank has maintained its benchmark rate at the same level for the longest period since 2003. The RICS noted that the market has stabilised and although activity remains weak, it is not worsening.

Wage growth rose at the fastest pace in almost three years during the last three months of 2004, adding to concerns about inflationary pressures.

Average earnings excluding bonuses gained an annual 4.5% in the three months to the end of December, up from 4.4% in the three months to the end of November.

Unemployment benefit claims fell by 11,000 in January, the biggest drop since July 2004, pushing unemployment down to 2.6%, its lowest since April 1975.

In its quarterly inflation report, the Bank of England raised its forecast for economic growth and inflation over the next two years after manufacturing rebounded and commodity prices rose, noting that the risks to the forecasts were to the downside.

The BoE expects inflation to exceed the 2% target in two years, while economic growth will not fall below 2.7% in any quarter this year. In its previous report, published in November, the BoE said that it expected growth to fall to as low as 2.5%.

Retail sales rose in January at the fastest pace since September as shoppers spent more money in department and food stores after the worst December in a quarter of a century.

Sales rose 0.9%, against a revised decline of 1.1% the previous month, slightly ahead of consensus expectations. Annual sales rose 3.9%, the fastest rate in three months.

Over the week the All-Share ended just 0.1% higher, as a 0.3% rise in the FTSE 100 was offset by falls of 1.0% and 0.4% in midcaps and small caps respectively. Resources and consumer cyclicals accounted for the strongest sectors, while technology, industrials and selected consumer staples were the weakest.

Financial information provider Reuters (+1.8% to 416½p) reported a rise in profit in 2004 to £352m from £50m a year earlier after cutting costs and selling assets. Reuters is cutting costs to revive profit and is introducing new trading systems to return to growth and will incur a one-off charge of £80m this year as part of its cost cutting programme.

Asia-oriented bank Standard Chartered (-1.4% to 1000p) reported a 35% increase in second half profit as it reduced provisions for bad loans.

The company is expanding in Asian countries such as Korea and Indonesia, which it expects to grow faster than the developed economies of Europe. The most recent acquisition has been in Korea, where the $3.3bn purchase of Korea First Bank last month gives Standard Chartered access to an additional three million customers.

Associated British Ports (-1.1% to 487¼p), the UK's largest port operator, posted a 41% decline in 2004 profit after writing off the costs of a planned port development that was rejected by the government.

The £44.9m write-off related to the Dibden Terminal development which was vetoed by government last year. The company plans to build new coal and freight terminals at Immingham as part of a £400m expansion plan and intends to sell £50m of property to help finance the 10 year project.

This week the minutes of the February Monetary Policy Committee meeting are expected to show another unanimous vote to keep rates unchanged, which would mark the longest period of unanimous voting since the inception of the MPC.