The FTSE 100 recorded one of the best European performance in the first half. The index has gained more than 5% since early January. The UK economy and especially the labor market has benefited from 'Olympic effect'. Unemployment in the second quarter falls to 8%, its lowest level in a year. However, the first estimate of GDP for the second quarter confirms the country's recession (-0.7% against -0.2% in the first quarter). Last month, the IMF urged the government to implement new tax measures.
Last week, the Bank of England revised its outlook for 2012. No growth is expected. The latest indicators of business conditions confirm the UK economy is weakening. The manufacturing PMI slumped to 45.4 for the month of July, its largest fall in 3 years. The services PMI fell to 19-month low in July.
The Bank of England decided to increase its asset-purchase program by 50 billion pounds in June, bringing it to 375 billion pounds. On Wednesday, the Bank governor Mervyn King announced that new liquidity to support the economy was not necessary at this time but that the interest rate would remain several months at 0.5%.
Technically, the trend remains bullish in daily data. A weekly close above 5870 points would push the index to the highs of 2012 around 5950 points. However, a confirmation of the bad economic forecasts could lead to a break below the support area of 5700 points and open the way for a more significant consolidation towards 5380 points.
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