In a highly anticipated move, the Governor of the Bank of England (BoE), Mark Carney, has restated the Bank’s guidance on its interest rate policy, given the fact that UK unemployment has declined to very close to the 7% target level they previously set for possible action on this front. Whilst reiterating that their forward guidance “is working”, by reducing uncertainty in the market place and promoting businesses to invest and increase recruitment – thus helping the economy to grow – he did say, however, “as a result of exceptionally strong jobs growth” it is time to look at a wider range of factors in determining their interest rate stance, as at the moment the UK economy is still not secure. These factors may include; wages, spare productivity and the gap between potential and actual economic growth, known as the ‘output gap’. The Governor intimated that in the short term the BoE would only “gradually” raise interest rates to around 2% by 2017, further reassuring the market. Analysts believe that this process could start by Q1 or Q2 2015. The BoE will also be publishing forecasts of a number of economic factors based on this assumption of rates reaching 2% by 2017. Overall, Mark Carney’s projections for the economy were slightly bullish, saying that business investment was likely to gather pace in 2014, enabling them to increase their forecast for economic growth in 2014, from 2.8% to 3.4%. He did, however, caution that, at present, the economy was “neither balanced nor sustainable”, and that “A few quarters of above trend growth driven by household spending are a good start but aren’t sufficient for sustained momentum.” The clear message was; there was still work to be done, but that their own inflation report stated; “Bank rate may need to remain at low levels for some time to come.”
(Data supplied by the Outsourced Marketing Department) Global equity markets regained their composure in February with the FTSE100 gaining 4.6% to end the month on 6,809.7, whilst the wider FTSE250 also saw a 6.71% gain, closing on 16,726.00, and the junior AIM market finishing on 886.3, a rise of 3.17%. Across the pond, the Dow Jones did likewise, gaining 3.97% to 16,321.71 and the Nasdaq rising 4.98% to 4,308.12. In mainland Europe, the Eurostoxx50 also rose by 4.49% to close at 3,149.23. However, in Japan the Nikkei 225 failed to rally, ending February down a marginal 0.49% at 14,841.07. On the foreign exchanges, sterling was in favour, given the clearer forward guidance on interest rate policy offered by the Bank of England. It closed at $1.67, up 1.83% against the greenback but virtually flat against the Euro at €1.21. The Euro itself gained 2.22% against the US Dollar, closing the month on $1.38. As for the commodities, Oil, as measured by the Brent Crude benchmark, rose by 2.45% over the month to finish at $109.01. Gold continued its recent rally, gaining 8.17% to close at $1,345.75 an ounce. N.B.
Given the military intervention of Russia, attempting to annexe the Crimea region of the Ukraine, which took place over the weekend of March 1st and 2nd , most markets reacted negatively on the first working day of March. As we went to press on March 3rd the FTSE100 was down 78.42 points to 6,731.1, a 1.4% fall, the FTSE250 down 308.01 points at 16,416.99, or 1.85%, the Eurostoxx50 off 60.42 points at 3,088.81, down 1.9%, and the Nikkei 225 off 188.84 points at 14,652.23, down 1.3%. Download full report here