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Last Week in London

25 January 2004 Angelo Coppola

The UK market lost ground last week, says Quentin Smith at Old Mutual Asset Managers in the UK.

This, as the US market came off a 22 year high, with the dollar continuing to weaken as the European Central Bank indicated that it had no intention of intervening at current levels.

GDP growth rose to a higher than expected 0.9% in the fourth quarter, the fastest in almost four years, giving a year on year gain of 2.5%, according to preliminary government estimates.

Consumer price inflation was unchanged in December at its lowest level in six months as growth in air fares slowed from last year. Prices rose 1.3% from a year ago, comfortably below the Bank of England's 2% target.

Major retailers have been cutting prices to bolster sales amid signs that consumer spending is slowing. Prices rose 0.4% in December from November, following a 0.1% fall the previous month and growth remains among the slowest in the European Union.

The minutes of the January meeting of the Bank of England's Monetary Policy Committee showed that the nine members voted 8-1 in favour of leaving interest rates unchanged at 3.75%.

The MPC cited low inflation, and the weak dollar as a possible threat to euro area growth and UK trade, commenting that there were few signs that costs and prices were currently rising more rapidly than had been envisaged in November.

Consensus expectations are that there will be a further quarter point rate rise at the

February meeting.

This week the 1Q CBI industrial trends survey is expected to have rebounded to an 18 month high. Having worsened in recent months in response to rising interest rates, expectations are that the January GfK consumer confidence survey will have shown a slight improvement.

December mortgage approvals are likely to have come off peak levels, although overall consumer credit is expected to remain robust. Finally, this week sees the first release of 4Q US GDP.

Although forecast to be below than the 8.2% recorded in 3Q, expectations are for a continued strong recovery.

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