The Tuesday note - 29 May 2018

• The FTSE 100 fell by 48 points last week to close on Friday at 7,730.3, as political risks weighed on investor confidence. The 10 year Gilt yield hardened to 1.32%, thanks to a flight to safety. 
• Concerns over political instability hit the values of Italian and Spanish government bonds. Italian 10 year bond yields jumped to 2.70% on Monday, up from 1.73% at the beginning of May, while Spanish bonds reached 1.52% (vs 1.28% on the 30th April). 
• CPI inflation in the UK fell to 2.4% in April, in part due to cheaper air fares. Analysts had expected inflation to remain steady in April, following the deceleration seen in February and March. 
• UK Finance, a trade association, revealed that credit card spending was 9.8% higher in April 2018 than a year earlier. They also reported an increase in re-mortgaging of home loans.  
  
  

Chief Economist: 

Despite the rally for energy prices, the inflation figures are coming in below expectations. Some analysts are even querying whether an August hike in interest rates is likely, and predicting a November rise instead. At present, the Bank of England are guiding that they view the Q1 slowdown for GDP as a blip, so unless we see weak Q2 figures, my money is staying on an August increase. At present, the unemployment rate is remaining stubbornly low, which will eventually lead to pay increases, and in turn, higher inflation.