There were no significant UK developments on Friday, although a further annual decline in retail sales by the John Lewis group unsettled confidence. Sterling remained generally weak against the Euro with lows around 0.80, although it did exhibit some initial resilience. The UK currency also tested levels above 1.97 against the dollar as the US currency slumped.

Underlying confidence in the UK economy will remain very weak in the short term, especially as there has been a renewed increase in energy prices which will increase pressures on spending and risk an increase in political protests.

UK input producer prices rose by a further 3.8% in May with a 27.9% annual increase while there was a very strong increase in output prices. The big increase in core prices of 1.2% for a 5.9% annual increase will reinforce expectations that the Bank of England will not be able to cut interest rates in the near term and there is likely to be some speculation over an increase. This will provide some Sterling support, although the impact will be substantially weakened by fears over an even steeper economic deterioration.