Terrible UK consumer confidence prompts a Sterling slump

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The markets were dominated at the end of last week by the terrible events in Japan and the crisis unfolding in the Middle East, but not quite overshadowing important economic indicators, especially UK data.

A terrible UK Nationwide consumer confidence figure nearly snuck in under the radar last week, showing the lowest reading in the 7 year history of the index. The worry is that this is a sign of things to come in the UK as inflation rockets, unemployment increases and growth peter's out rather than a reaction to rising energy prices and the situation in the middle east? 

Sterling lost ground on Friday against the US Dollar, falling through £/$ 1.60 and remains under pressure against the Euro, seemingly at the mercy of the current Euro strength. Sterling also declined significantly against the Australian and New Zealand Dollar, losing over 3 cents against the Australian Dollar on Friday.

There could be more sleepless nights for Mervyn King and members of the Bank of England monetary policy committee (MPC) as they try to navigate a fiscal policy in the right direction. Wednesday's release of the latest MPC minutes will be watched closely to see if a fourth MPC member votes in favour of a hike in interest rates. If that happens it is likely to be Sterling positive. If not, Sterling may be running out of steam.

In a week where geopolitical concerns are likely to dominate sentiment, investors will be scrutinising events in Japan, the Middle East and North Africa for clues as to market direction. In the UK, Wednesday's Budget is likely to be the focus of attention, while on the same day Bank of England minutes will provide insight into the MPC's latest rate-setting meeting. In a busy week, the latest inflation figures on Tuesday will also be closely watched. US fourth-quarter GDP brings the week to a close on Friday.