Whilst the markets were, quite rightly, transfixed by events in Eastern Europe, there were some domestic events that provided hints, regarding the pace of UK monetary tightening, and the performance of the UK economy. On the latter, last week saw the release of provisional February Purchasing Managers’ Indices (PMI) for manufacturing and services, both of which were better than expected, but significantly weaker February surveys on manufacturing and retailing from the Confederation of British Industry. First thing on Friday, the Growth from Knowledge consumer confidence index for February fell to its lowest level since January ’21, dragged down by a significant weakening in economic outlook and outlook for personal finances.
The drop in UK consumer confidence is consistent with drops in confidence elsewhere in the developed economies. But these moves are significant, since they highlight the difficulty that this supply side and energy shock led inflation is creating for households. Inflation didn’t get much attention when some of the Bank of England’s Monetary Policy Committee members testified to the Treasury Select Committee last week. They did re-emphasise that the markets appear to be over-pricing the size and frequency of UK rate rises needed to bring inflation back to target. That did little to alter expectations, and though there is a greater geopolitical risk because of the war between Russia and Ukraine, the macroeconomic consequences are less clear.
For this week, there aren’t any particularly important releases due from the UK. There will be interest in the manufacturing, services and construction PMIs: the first two revised from provisional February readings; whilst the construction PMI will be a first look at activity in February versus January. All are expected to retain strength or edge up from January’s figures. Other than those releases, there are only January Bank of England consumer lending figures, and the Nationwide house prices data for February due.
As for the GBP, it plunged through $1.33 towards the end of last week, but recovered to above $1.34 on Friday against the USD. But against the EUR it has, somewhat surprisingly, lost ground despite the more obvious economic pressures on Euroland versus the UK. I suspect there are greater downside risks versus upside risks for the GBP over the next few weeks at least.