The Monday note - 21 May 2018

• The FTSE 100 closed at a 2018 high of 7,778.8 on Friday, which was slightly higher than this year’s previous record set in mid-January. The 10-year gilt yield stood at 1.50%. 
• The US dollar rose to a five-month high against a basket of major currencies on Friday, helped by weakness in the euro as investors fretted over political uncertainty in Italy. 
• ONS data showed that 197,000 jobs were created in the UK in Q1 2018, while the unemployment rate remained at a 43 year low of 4.2%. This increases the odds of an interest rate increase in August. 
• The Sunday Times reported rumours are circulating in Westminster that there could be an autumn general election. 

Chief Economist comments: 

Just as evidence emerges that the Q1 slowdown for UK GDP was probably a blip, the politicians seem intent on dampening the economy by ramping up the political uncertainty. Some investors are now more concerned by the possibility of a change of government than they are about Brexit. Hopefully, talk of another election is just discontented backbenchers trying to scare the government with the threat of a no confidence vote. After all, the last three polls held in the UK – the referendum, last year’s general election, and the recent council elections – delivered surprise outcomes. Voters are behaving unpredictably, and it feels brave for politicians to tempt fate by going to the country.