View from the trad­ing floor

The Daily Telegraph - Business - - Business - MICHAEL HEW­SON Chief mar­ket an­a­lyst @mhew­son_CMC

The per­for­mance of eq­uity mar­kets has been no­table in re­cent weeks for be­ing able to look past all the con­cerns about a pos­si­ble global trade war, in ad­di­tion to those about a mil­i­tary flare-up in the Mid­dle East. In the UK we have seen the main FTSE bench­marks close higher for three weeks in suc­ces­sion, de­spite all man­ner of sto­ries about the woes in con­struc­tion and the re­tail sec­tor.

Given these con­cerns it seems strange that the mar­kets still be­lieve the Bank of Eng­land could look to raise in­ter­est rates by 25 ba­sis points when its Mon­e­tary Pol­icy Com­mit­tee meets next month. In re­cent com­men­tary Bank of­fi­cials have ex­pressed con­cerns about lev­els of in­fla­tion be­com­ing en­trenched. Re­cent up­ward moves in com­mod­ity prices will only serve to re­in­force those wor­ries, with oil its high­est level last week since De­cem­ber 2014.

It is against this back­drop, with the

We could see a rise next month of 25 ba­sis points

US Fed­eral Re­serve seem­ingly de­ter­mined to press on with its own rate-hike cy­cle, that other global cen­tral banks are op­er­at­ing. This means that, bar­ring dis­as­trous num­bers from the UK econ­omy this week, we could see a rise next month of 25 ba­sis points in the base rate to 0.75pc from the Bank of Eng­land.

There are al­ready con­cerns among cen­tral bank of­fi­cials about high lev­els of con­sumer debt, so nudg­ing up rates would have the ef­fect of mak­ing con­sumers think more care­fully be­fore in­creas­ing their debt lev­els even fur­ther.

Fur­ther­more, there is an ex­pec­ta­tion that this week's wages num­bers could see av­er­age earn­ings move above the head­line con­sumer prices in­dex (CPI) num­ber for the first time since the be­gin­ning of last year. Mar­ket ex­pec­ta­tions are for head­line CPI for March to stay steady at 2.7pc, while wages ex­clud­ing bonuses will rise from 2.6pc to 2.8pc for the three months to Fe­bru­ary. The broader num­ber is ex­pected to rise to 2.9pc.

This will be small com­fort to those of us who ex­pe­ri­ence far larger price rises on goods and ser­vices in our daily lives, yet the sym­bol­ism of wage growth mov­ing above in­fla­tion should not be un­der­es­ti­mated in the con­text of what hap­pens to the UK econ­omy over the rest of the year.

De­spite a poor 01 last year, the UK econ­omy went on to grow at a faster rate in sub­se­quent quar­ters — and given re­cent sim­i­larly poor data at the be­gin­ning of this year, the hope will be that we will see a sim­i­lar story play out in 2018 as well.

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