UK100 Analysis

Political drama in the UK seems to be ever-present in recent years and the current week started with a cabinet shake-up by the Prime Minister ^[1], after just one year in office. Mr Rishi Sunak succeeded Ms Liz Truss in late-October of 2022, which was the shortest-serving PM, in the third straight PM change of that year. In the most notable changes, Ms Suella Braverman was replaced as Home Secretary after having a few brushes with Number 10, while former PM David Cameron was appointed Foreign Secretary in a head-turning comeback. Mr Cameron was the PM who held the 2016 Brexit Referendum and stepped down after the electorate voted in favor of exiting the European Union.

Political developments aside, markets have important economic data to digest. Today we saw further easing in wages, albeit not drastic. Average weekly total pay grew by 7.9% in the July-September period and by 7.7% excluding bonuses. High wages are constant headache for the Bank of England, as they make controlling inflation much harder.

Inflation has moderated substantially, helping BoE to keep rates unchanged in the past two meetings at 5.25%, pausing its massive tightening cycle after fourteen straight hikes worth 515 basis points. Policymakers expect further deceleration, but raised their forecasts, not seeing a return below the 2% target for another two years. As such, they may have a hard time staying on the sidelines, but every new hike increases the risk of breaking something. The UK economy avoided a contraction in Q3, according to Friday's preliminary data, but the prospects look bleak. The BoE projects no growth next year, but that is conditioned on interest rates staying at current levels. ^[2]

UK100 has been consolidating in recent days and that did not change with this week's news, as markets await Wednesday's CPI inflation update, which can determine the next leg. The BoE's back-to-back rate holds and the easing in wage pressures are supportive, but does not inspire much confidence at this stage and will need a catalyst to break through the daily Ichimoku cloud, which will bring 7,758 in the spotlight.

The BoE's monetary shift however, is largely due the economic slowdown, as the UK struggles for growth, factory and services activity is suppressed, borrowing costs elevated and money supply has been contracting over the past few months. This creates a negative environment and below the EMA200 (black line) immediate bias is on the downside. UK100 remains vulnerable to the 2023 lows (7,202), although further losses have a higher degree of difficulty.