Inflation softens in February; a rethink at BoE?

Despite a lower close on Wall Street and Asia overnight the FTSE has managed to start Tuesday trading higher. Although it almost slipped into negative territory, the slight weakening of the pound following the CPI release has ensure that the FTSE keeps it head above water and above the key psychological level of 7000.

Despite a lower close on Wall Street and Asia overnight the FTSE has managed to start Tuesday trading higher. Although it almost slipped into negative territory, the slight weakening of the pound following the CPI release has ensure that the FTSE keeps it head above water and above the key psychological level of 7000.

Inflation slowed more than expected in February, dropping from 3% in January to just 2.7% year on year in February, whilst core inflation dropped to 2.4%, from 2.7% the previous month. 

The weaker than forecast inflation shows that inflation is starting to work its way out of the system. The pound has wiped out its gains for the morning, moving close to 0.2% lower on the release; a release which is likely to cause a rethink at the BoE as they meet to discuss monetary policy. 

These figures give the BoE breathing space and drastically reduce the need for tightening. The BoE are now less likely to take action in May and this is probably what we will hear from Mark Carney on Thursday. 

The central bank will now be much more inclined to see how the inflation story plays out before stepping up to take action.

On the other side of the coin, the positive news from the release, is the fact that consumers should ever so slowly start to feel an easing of pressure on their wages. Whilst there is still a difference with wages being lower than inflation, the gap is closing. 

Continuation along this path could see the consumer back out and spending in force by mid-Autumn which would pick to the economy back up.

GBP/USD supported at $1.4030

GBP/USD is moving lower although importantly remains above the psychological level $1.40, finding support at $1.4030. Investors will now look towards the BoE on Thursday and the Fed decision tomorrow.

Bellway Homes up 3%

Home builders were putting in a solid performance early on Tuesday, supported by a 3% increase in Bellway Homes on its promise to build over 10,000 homes in a year for the first time ever as Bellway continues to reap the benefits of the governments Help to Buy scheme. 

Government policy is clearly supporting the construction business as Bellway figures point to 39% of their buyers using it. With the agreement of the Brexit transition deal, house builders could now find themselves on a more solid footing as the removal of some uncertainties could give buyers and sellers more confidence, boosting the market.

Ocado 0.5% lower despite revenue growth

Not even the Beast from the East was going to knock Ocado from its path in t Q1. Ocado managed to overcome weather disruptions to book double digit revenue growth of 11.7% the three months to March, losing only 1% of revenues in the quarter due to snow disruption. 

An impressive feat given that order size was down slightly as consumers tightened their belts in the face of rising prices and lower wages, although this was more than made up fir in by the 11.1% increase in weekly orders. 

The other area worth considering with Ocado, is its branching out into providing its technology and platform for French and Canadian retailers. This is a new venture, so we are still a long way off knowing it long term profitability, bit it certainly a more than interesting move.

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