13 Feb 2017

The week ahead: Monday 13 February 2017

Philip Shaw

Chief Economist

UK parliament is in recess throughout next week and so there will be a pause in the process towards the triggering of Article 50. By contrast economic indicators will be plentiful.

  • CPI figures (Tuesday) look set to confirm the upward trend in inflation. We are forecasting an increase to 1.8% from 1.6%. As well as the effect of energy prices, the CPI will be affected by seasonal airfare movements and technicalities of changes in weights, which this month may put some modest downward pressure on the annual CPI rate. Also, cold weather in parts of continental Europe appears to have restricted the supply of various vegetables, pushing up prices, including courgettes and certain lettuces. With respect to the latter this may mean that UK households face a choice between ‘Romaine’ and ‘Leaf’…

  • Labour market data follow on Wednesday. Last month’s data showed a seemingly contradictory picture of a fall in employment and accelerating pay rates. For the upcoming numbers we are expecting a small tick up in the unemployment rate to 4.9% and a steadying in headline earnings growth at 2.8%. These figures are for December though and perhaps next month’s pay figures will be more important, given that January tends to be one of the more significant months for private sector wage deals.

  • Also of note will be Friday’s retail sales data for January. December’s release saw sales volumes crater by 1.9% on the month. Of course this series can be very volatile, especially at the turn of the year as seasonal factors become difficult to adjust for. But January’s British Retail Consortium survey was far from convincing, showing just a marginal rise on the year (in value terms) and we are forecasting a very modest rebound in the official measure by 0.3%. If so, markets may conclude that this marks the start of the slowdown in consumer spending, which could neutralise any talk of higher interest rates. Our baseline case is still that the next move in rates is up, but not until 2019.

  • Moving globally, Fed Chair Janet Yellen gives her first Congressional testimony under the Trump Presidency to the Senate Banking Committee on Tuesday. The recent FOMC statement did not convey the impression that the committee is in a hurry to raise rates again. Moreover indicators of wage pressures released recently (the employment cost index and average weekly earnings) have been modest. We stand by our June call for the next hike. Dr Yellen repeats her testimony to the House Financial Services Committee the following day, which will coincide with the releases of CPI, retail sales and industrial production.

  • Eurozone-wise we get preliminary Q4 GDP from Italy as well as final estimates from Germany and the Euro area as a whole. But what we are watching with increasing curiosity is the way that the second Greek review is running into the buffers, with few chances of an agreement by the next Eurogroup meeting on 20 February. The biting political constraint after that is the string of elections in the eurozone over 2017, beginning with those in the Netherlands on 15 March (note that Eurogroup head Dijsselbloem is also the Dutch Finance Minister). Such concerns resulted in short-dated (July 2017) Greek government bond yields climbing above 13% today.

  • Elsewhere we will see Q4 Japanese GDP first thing on Monday morning, against a background of the authorities upgrading their view of the economic outlook. Chinese CPI figures are scheduled for early Tuesday morning, while the Riksbank makes its latest policy announcement on Wednesday.

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