UK plc defies the naysayers

More good news on the UK economy has lifted sterling, but the FTSE remains uninspired, down slightly in mid-morning trading says Chris Beauchamp, chief market analyst at IG.

UK plc defies the naysayers

Today’s services PMI reading makes it three for three on UK economic data this week. The British economy continues to defy expectations, although in each one signs of higher prices due to the weaker pound can be seen.

Thus, it looks increasingly likely that the BoE could find itself on the horns of an inflation dilemma later in the year. The FTSE itself is once again unable to hold the 7200 level, although it did succeed in touching a new intraday high in early trading.

Weakness in oil prices is the primary reason for the disappointing performance this morning as the drop in crude hits BP and Shell, although both these have done spectacularly well over the past few weeks. Also roaring away this morning, for a second successive session, are housebuilders as Persimmon, long the darling of the sector, restores optimism with a decent trading update. Clearly this builder still has the magic touch, and making Bovis Homes’ recent warning look even worse by comparison.

After the Fed minutes last night the focus shifts to the outlook for US jobs, with the ADP payroll and initial jobless claims figures on the ticket for the day, ahead of NFPs tomorrow.

The onus is now on the dollar bulls to prove that further advances in the greenback are warranted; while the dollar index has moved off its overnight lows a bumper set of job figures in the next two days are needed to restore the bullish momentum that has been distinctly lacking in the past three weeks.

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