Week in review: gold shines in the gloom

Evidence that times are now pretty tough for those who make a living from the debt laden UK consumer arrived in spades this week, dragging the FTSE 100 down around 2.5%. In the retail sector, Sainsburys tried its best to lift the mood by reporting its 12th straight quarter of sales growth but that did little to sooth markets stunned by bellwether Marks and Spencer's declaration earlier in the week of its worst quarterly sales performance for two years.

This bombshell was compounded by gloomy forward sales announcements from several house builders with figures from Persimmon (down 14%), Bovis (also down 14%) and Redrow (down 9%), a stark reminder that the unexpected 1.3% boost to UK house prices reported by the Halifax for December was almost certainly a temporary blip.

Hopes that the Bank of England might ride to the rescue proved unfounded when on Thursday the Monetary Policy Committee voted to keep interest rates on hold at 5.5% largely in response to the alarming inflation outlook - the CBI noted that "pressures from oil (which stubbornly refused to shift far from $100 a barrel) and food prices remain worrying". Foreign exchange dealers meanwhile, painted a very clear picture of how little room for improvement they see for the UK's ailing economy. On Wednesday, the pound touched its lowest ever level against the euro, which will also make it tougher for the Bank to cut rates.

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The decision not to cut doubtless annoyed Alistair Darling, as Bank governor Mervyn King clearly opted to ignore his suggestion at the first Treasury press conference of 2008 that the MPC had "room to manoeuvre" - an astonishing comment given the importance of independence from the Treasury to the Bank's overall credibility.

When not trying to alienate the MPC this week, Alistair Darling was promising to get tough with power companies, by holding talks with the regulator Ofgem, after Npower declared it will soon be hiking electricity prices by 12.7% and gas prices by 17.2%. We doubt German-owned Npower is too worried it will simply turn the blame back on the government's "renewables obligation" which forces energy firms to pay top dollar to generate or buy a proportion of their power from expensive "clean" sources.

Indeed the government, and unfortunately consumers too, are now reaping the whirlwind from the government's decade-long dithering on UK power planning. Although Minister for Business John Hutton's invited firms "to bring forward plans to build nuclear power stations" this week the problem, as EDF's chief executive Pierre Gadonneix confirmed, is time. The French company could have the next new power station operational by 2017, but in reality UK regulatory and planning barriers could easily push that back to 2020 or beyond.

Finally, over in the US it's clear that Ben Bernanke still believes that he can single-handedly rescue the US economy by taking "substantive action" interpreted as more rate cuts and liquidity injections - despite recent warnings from Merrill Lynch, on the back of last Friday's dreadful US jobs data, that "recession is no longer a forecast but a present day reality".

The US stock markets seem to be coming round to that view with a drop of nearly 2% since Monday. But the promise of rate cuts was good news for the price of one asset gold. The prospect of yet more money flooding the globe helped demand for the shiny metal a traditional inflation hedge push the price close to $900 an ounce for most of the week.