Lucky for some…

Quentin Smith, investment communications manager at OMAM in the UK reports that the London market moved lower last week as optimism over hopes of a Chinese yuan revaluation and continued M&A activity were offset by a number of major stocks going ex divide

The Bank of England left the benchmark interest rate unchanged at 4.75% amid weaker consumer spending and declining manufacturing output.

The inflation rate unexpectedly rose to 1.9% in March, the highest in almost seven years, amid a surge in energy prices.

In its quarterly report, the Bank of England forecast that inflation would breach the 2% target level this year, earlier than previously expected, before falling back in 2006. This suggests that the benchmark interest rate will remain unchanged for the foreseeable future.

The Bank noted that risks to its inflation projection are broadly balanced, in contrast to with the wording of its February inflation report, which said they were to the downside.

The Bank also lowered its growth forecast for this year amid signs of a slowdown in consumer demand, saying that the economy may expand by around 2.6% this year, before accelerating to nearer 3%.

The trade deficit narrowed to its lowest in a year in March as demand for imported goods declined amid a slowdown in consumer spending. The deficit in goods was £4.4bn, down from a revised £5bn the previous month.

Expectations were that the deficit would be unchanged from the previous month. Imports fell 0.4% from the previous month to £21bn, while exports rose 3.4% to £16.6bn.

Over the week the All-Share lost 0.6%, with the FTSE 100 0.7% lower. Smaller companies shed 1.2% over the week, while midcaps had a better week, advancing 0.2%. Utilities, industrials and consumer staples led the gainers, while resources came under pressure from currency fluctuations.

This week sees a number of data releases related to the consumer sector. The April RICS house price survey is expected to be consistent with slowing house price inflation, while April consumer price inflation may unwind from the sharp rise in March, although upward pressures remain, notably in the form of higher petrol prices.

Continued tightness in the labour market is expected to result in higher March average earnings, while April unemployment may continue the rising trend of the past two months.

Recent survey evidence suggests that April retail sales will be weak, with the year on year rise sharply down from the 6% recorded a year ago.