U.S. secretary of state Colin Powell’s speech before the United Nations yesterday did nothing to clarify the possibility of war with Iraq according to economists at RBC Financial Group. The ongoing uncertainty is overshadowing the modest economic data out in Canada today.

“Equity markets rose in the initial stages of the speech as it appeared Powell would be presenting an iron-clad case against Iraq. However, by the latter part of the day those gains had turned into losses as markets realized that key Security Council members France, China and Russia were left unconvinced that immediate military action was necessary,” RBC reports.

“The general reaction seems to be that there is still no smoking gun, the U.S. is no closer to enlarging its coalition and the timetable for action against Iraq and resolution of this dispute is no clearer,” RBC says. “In that context it is difficult to envision that the cloud of uncertainty that is negatively affecting business and, increasingly, consumer confidence and spending is going to lift soon. The downward drag on growth from the business sector will continue.”

The other development that RBC notes was the surprise 25 basis point rate cut by the Bank of England today, taking their key rate to 3.75%. The European Central Bank, also meeting earlier today, held its key rate constant at 2.75%.

“The UK cut is a surprise because their economy has been the second strongest among the G7 the past two years, lagging only slightly behind Canada, and inflation has been above the 2.5% target.”

“In contrast, Canada stands out as the only G7 country in which rates are likely moving higher in the near future, likely on April 15,” RBC predicts.

The only data out in Canada today was December building permits, which declined 3.2%, their second consecutive drop. “The weakness came from a 14.8% slide in non-residential permits, highlighting the recent uncertainty in business investment after a better-than-expected showing earlier in 2002,” says RBC. “The residential side fared much better, with permits rising 4.6% in December. Permit issuance for 2002 as a whole set a new record of $45.9 billion, breaking the previous high of $40 billion set in 1989. With interest rates moving higher in 2003 we expect the residential construction sector to see reduced activity in the next two years.”

Also in Canada the help-wanted index fell for the sixth consecutive month, down 1.7% from December. “The HWI has become increasingly irrelevant in as advertising for job openings in newspapers is replaced by other methods, however these six months of declines should, at some point, be validated by a stinker of an employment report after so many months of huge job gains. Could it be tomorrow?” RBC asks.