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British consumers remain surprisingly positive about their own personal prospects, even though they are gloomy about the outlook for the economy, according to the January GfK/NOP confidence survey.

This looks good news for retailers but frustrating for the Bank of England, which pushed through a surprise rise in interest rates at the start of the month in the wake of a strong uptrend in retail sales.

The overall confidence index is still minus 7, a modest improvement from minus 8 in December, but City analysts had expected a move in the opposite direction.

Most of this negativity is about consumers view of the economic situation in general. Prospects for the economy over the next year rate minus 20, the worst since September, just after the first of the three recent Bank Rate increases.

On personal finances, there is a different story. The latest verdict on the past 12 months is minus 3, two points worse than a month ago.

But the next 12 months still rates plus 9, only two points down from December. As usual in the January sales month, people were looking to buy big-ticket items.

One crumb of comfort for the Bank is that the index of “now is a good time to save” rates a positive 34, the highest since September. But there is nothing here to suggest that consumers are likely to lock up their wallets and purses so long as there are plenty of jobs to be had.

The latest mortgage figures show record borrowing for house purchases but a relatively sharp fall in mortgage approvals. Heavy seasonal effects may have played a part but if anything is to give in the short term, it looks most likely to be in the housing market.

Kelda and Severn Trent were among the London market’s top performers, amid speculation that infrastructure funds could turn their attentionto the water utilities.

According to traders, Kelda, looked the most vulnerable because of its low debt and stable cashflow. However, analysts argue that the Yorkshire Water owner may already be too highly valued: it trades at a sharp premium to regulated assets and is widely considered to be efficiently run with a tight investment programme, so offers few cost-cutting opportunities.

Corus led the wider market in the wake of Tata’s 7 billion victory in last night’s auction for the steelmaker. But that proved not enough to keep the FTSE 100 in positive territory, with volumes lower than usual ahead of tonight’s Federal Reserve rates decision, due after European markets close.

Friends Provident was the sharpest blue-chip faller as a full-year sales update from the insurer was overshadowed by problems at F&C Asset Management, its majority-owned fund manager. F&C shares dived 17 per cent afterit saidthat it would cut its dividend because of worse than expected outflows from its Dutch business and a need to raise investment.

A broker upgrade helped to lift Kingfisher, with JP Morgan arguing that the B&Q owner had reached an inflection point. While results next month are unlikely to be good, the need for Kingfisher to cut its dividend may trigger major changes in the boardroom, JPMorgan said. The US banks team also argued that a venture capital bid for the retailer was plausible at 20 per cent above current levels.

Vodafone rallied after its quarterly trading statment beat forecasts and management vowed not to overpay in the auction for India’s Hutchison Essar.

Among the mid-caps, Misys climbed after Deutsche Bank added the banking and healthcare software group to its “buy” list.

It told clients: “We believe downside risk to short-term earnings expectations is now factored in, and the market is proving willing to look through to the group’s long-term recovery potential. With the January results out of the way, the new CEO’s strategic update in early March is likely to prove a positive catalyst.”

Morningstar provides in-depth research reports for a universe of approximately 200 health-care stocks, but only have been granted the coveted wide-moat designation. Many of our readers are familiar with how we assign economic moats–in a nutshell, it’s a process in which we assess the long-term competitive advantages of a firm, as well as its ability to generate strong returns on investment in its business. However, these moats aren’t set in stone. Industry dynamics, internal company evolution, and big acquisitions can cause moats to change with time.

When we boost a company from no moat to narrow–or from narrow to wide–it can have a meaningful effect on our fair value estimate. To reflect the firm’s improved position, we make various changes to our valuation models; most importantly, we lengthen the time that it can generate superior returns, and we discount future cash flows at a lower rate. For example, taking a look at the health-care sector, we recently boosted http://quicktake.morningstar.com/Stock/MorningstarAnalysis.asp?Country=USA&Symbol=GENZ http://quote.morningstar.com/Switch.html?ticker=GENZ economic moat from narrow to wide, and simultaneously raised our fair value estimate by almost 20%. While this biotech has its roots in rare disease treatments, we now see long-term strength in other segments of its business, increasing our confidence in the firm’s continued solid performance.

Of course, firms seldom prove they are worthy of a wider economic moat overnight. In fact, as profiled in our http://www.morningstar.com/Products/Store_StocksMGI.html newsletter, we cover several companies that we think are digging wider moats. These “emerging moat” companies are often at a transitional phase, and we aren’t quite ready to jump on board and assume new products or recent acquisitions will perform as well as management hopes. In future articles, we’ll be taking a look at stocks in other sectors that we think are also on the cusp of achieving a wider moat.

All three of the health-care firms we’ve chosen to profile todayare currently trading in 3-star (fairly valued) territory. However, we would advise investors to stay tuned; there could be significant upside to their long-term values in the future.

If you’d like to track and analyze these stocks, to create a watch list. Then simply click “Continue,” name your watch list, and click “Done.” (If this link does not work, please http://members.morningstar.com/prism/registrationFree.html?referid=A1151–registration is free–or sign in if you’re already a member, and try again.) This will allow you to save and monitor these holdings within our http://portfolio.morningstar.com/NewPort/Reg/AllView.aspx.

Amylin Pharmaceuticals http://quote.morningstar.com/Switch.html?ticker=AMLN
Business Risk: Above Average
Economic Moat: None
Amylin’s simultaneous launch of two novel injectable diabetes drugs in 2005 quickly brought the firm to the attention of biotech investors. The company just reported $430 million in 2006 sales of Byetta. This drug’s ability to control blood glucose while promoting weight loss gives it a unique position in an increasingly competitive market. A long-acting version of Byetta is in the works, which would make the drug more convenient to the 3.5 million patients who aren’t well controlled on oral drugs.

However, most of Amylin’s value is still riding on the success of Byetta and its long-acting counterpart, known as Exenatide LAR. As I discussed in a recent http://quicktake.morningstar.com/Stock/MorningstarAnalysis.asp?Country=USA&Symbol=AMLN, “If pipeline development is fruitful and Amylin proves that its competitive advantage extends beyond the exenatide molecule, we believe this biotech would warrant a narrow economic moat.” We’re waiting to see if Amylin’s other marketed drug, Symlin, can begin to see better market uptake with an expanded label this year, and if the firm’s potential for finding a safe and effective obesity treatment starts to unfold as planned.

Alkermes http://quote.morningstar.com/Switch.html?ticker=ALKS
Business Risk: Above Average
Economic Moat: None
A specialist in novel drug-delivery technologies, Alkermes has shown that its injectable extended-release technology has market appeal. Alkermes’ improved version of http://quicktake.morningstar.com/Stock/MorningstarAnalysis.asp?Country=USA&Symbol=JNJ http://quote.morningstar.com/Switch.html?ticker=JNJ Risperdal is seeing strong market uptake, and investors are waiting to see if the same technology can make Amylin’s Byetta an even more successful product. In addition, Alkermes has pulmonary technology that is being used to develop an inhaled form of insulin.

However, the company only retains a small portion of profits from these programs, and Alkermes’ success is riding on Vivitrol, an injectable alcohol dependence drug. Until we see evidence of strong sales from this product, we’re not quite ready to say that Alkermes will be able to sustain a high level of profitability for the long-term. As Heather Brilliant states in her http://quicktake.morningstar.com/Stock/MorningstarAnalysis.asp?Country=USA&Symbol=ALKS, “We think Alkermes may be on its way to digging a narrow moat, with several proven applications of its technology now on the market, solid partnerships with leading pharmaceutical firms, and a respectable pipeline of potential future products.”

Kyphon http://quote.morningstar.com/Switch.html?ticker=KYPH
Business Risk: Above Average
Economic Moat: Narrow
Kyphon’s niche in spinal orthopedics has been a valuable one–its patented kyphoplasty devices turned the firm profitable in 2003, and operating margins have been in the midteens ever since. Kyphon’s patent portfolio and foundation of successfully treated patients gave us confidence in the sustainability of Kyphon’s profitability, and we assigned the firm a narrow moat. However, with spinal market leaderhttp://quicktake.morningstar.com/Stock/MorningstarAnalysis.asp?Country=USA&Symbol=MDT http://quote.morningstar.com/Switch.html?ticker=MDT showing an interest in fighting its way into Kyphon’s niche, the firm’s dependence on one product line kept us from expanding the moat too wide.

Kyphon’s recent acquisition activity has the potential to transform the company, and if successful, could very well provide the diversification necessary to expand this moat. Newly acquired spinal assets from Disc-O-Tech Medical Technologies, as well as the acquisition of St. Francis Medical Technologies, fit well with Kyphon’s established niche. As Julie Stralow discusses in her http://quicktake.morningstar.com/Stock/MorningstarAnalysis.asp?Country=USA&Symbol=KYPH, “We think Kyphon is uniquely suited to address this potential market and take St. Francis’ devices to the next level. Adding this new growth driver to its product lineup also should temper some of the risks facing Kyphon.”