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Last week was reassuring to the fragile UK recovery, the speed of the about-turn in the economic data has been alarming, so it was with some mopping of brows that accompanied the CIPS/Markit report on services. The improvement means that the survey is no longer consistent with falls in the services sector output. This was teamed with manufacturing output rising a pleasant 0.3% which showed that production is not being hit by the slowdown from the industrial services just yet.

Before we sense victory the news last week was not all positive. It seems that although the fears of a double dip have receded, growth has still slowed to almost nothing. It didn’t help that Halifax house price survey revealed a 3.6% monthly fall which could indicate a likelihood that the housing market is beginning to relapse. It was also the biggest one month fall in its 27 year history.

The MPC interest rate decision took centre stage at the end of last week after they held rates again at 0.5%, which was as expected. Sterling rose on the back of the decision for no Quantitative Easing just yet, but it will surely only take a bit more negative news to push most people to vote towards further QE being put into place. If you recall the MPC’s august inflation report showed inflation was likely to undershoot its target and expected growth is around the 2.8% figure which looks laughable at the moment, as it would need 0.7% quarterly increases. Delaying the government planned spending cuts has come into question, but whether near or far they will still play on confidence. Therefore we look to the corporate sector to pull us out of trouble, and things do not seem very promising there either, what with high inflation reducing consumers’ incomes and the long-awaited trade boost failing to arrive. Tuesday’s Trade figures might give us a clearer view on support received from the external sector throughout Q3 but in general it seems the deficit has widened throughout Q3 as a whole. Likewise, Tuesday’s inflation figures will hopefully showing price pressures easing.

George Osborne has given the go ahead to the Bank of England to stuff more money into the economy, this comes from the worry around the spending cuts having a negative effect. Apparently other minsters believe the government needs to rethink the austerity measures in place to tackle to deficit if the economy stumbles. He also insisted on Friday that, unlike April, the cuts would be released at a staggered rate which might limit the damage.

Jeremy’s Trade of the Week

This week’s trade of the week is a simple forward. In keeping with our view that euro should weaken against the pound over the coming months we would take advantage of the near 6 month lows in the pair and advise clients who sell euros and buy sterling to hedge via a forward contract. A typical price at the time of writing on a 6 month forward is 1.1495, saving the client over 7 cents against our 6 month prediction of 1.22 for the pair.

Obviously forward contracts are available for other currency pairs and for further info please contact one of the traders on 020 7801 9050.

For full details of this structure please contact one of our options traders on 0207 801 9050.