Lloyds TSB – Weekly Economic Data Preview

The Bank of England is likely to revise up its 2-year inflation forecast and dampen GDP growth expectations in its quarterly Inflation Report, published at 10:30 on Wednesday morning. Data showing stronger producer and consumer inflation rates in January are likely to justify this view in the run up to the release. UK labour market and the latest external trade data are also due for publication. In the US, advance retail sales, external trade, Treasury International Capital Systems (TICS) data and Empire State manufacturing and University of Michigan confidence surveys for February are
released. Also in the US, Fed Chairman Bernanke testifies before the Senate Committee on Thursday, presenting his latest GDP and CPI inflation forecasts, which will help inform markets about future cuts in Fed funds rates.

Bank of England quarterly Inflation Report and key UK data feature

 

The Bank of England is likely to revise up its 2-year inflation forecast and dampen GDP growth expectations in its quarterly Inflation Report, published at 10:30 on Wednesday morning. Data showing stronger producer and consumer inflation rates in January are likely to justify this view in the run up to the release. UK labour market and the latest external trade data are also due for publication. In the US, advance retail sales, external trade, Treasury International Capital Systems (TICS) data and Empire State manufacturing and University of Michigan confidence surveys for February are
released. Also in the US, Fed Chairman Bernanke testifies before the Senate Committee on Thursday, presenting his latest GDP and CPI inflation forecasts, which will help inform markets about future cuts in Fed funds rates. In addition, the first estimate of EU-13 Q4 GDP and the German ZEW investor survey for February may help clarify the extent of economic slowdown in the eurozone. This data will be particularly interesting following President Trichet’s downbeat comments on economic growth during his press conference last week. Q4 EU-13 GDP will complete the provisional picture of 2008 growth performance in the major economies, see chart 1. Elsewhere, we expect the Swedish central bank to hold rates at 4% at its monthly meeting on Wednesday and the Bank of Japan to hold at 0.5% on Friday.

 

UK economic data could underpin the view that CPI inflation is rising, and that the Bank of England is justified in not replicating the Fed’s aggressive action to cut interest rates. In the run up to the publication of the Bank of England’s quarterly Inflation Report, which outlines the Bank’s future view on inflation and growth over a two year horizon, data on current inflation will add to speculation about the contents of the report. On Monday, producer input prices for January may be lower on the month, but up 12.9% on the year, well above factory gate prices, which may be higher on the month and to 5.1% on an annual basis. Excluding food, drink and tobacco, factory gate inflation of 2.6% suggests that companies may be taking a hit on profits,
weighing on stock markets. On Tuesday, CPI inflation for January, may begin its ascent to almost 3% later in the year, see chart 2, coming in at 2.4% annual growth, up from 2.1% in December. Labour market data published Wednesday may start to show a slight easing in the jobs market, but on the whole, employment and earnings growth is still looking solid. Official (DCLG) and RICS house prices also feature this week, along with the BRC retail sales monitor, providing useful information on the housing market and the trading situation in the high street.

 

The key US policy event this week is Fed Chairman Bernanke’s testimony to the Senate Committee on Thursday, during which he is expected to revise down his 2008 GDP growth forecast from the current midpoint of 2.1%, but revise up the core
PCE forecast from 1.85%. Nonetheless, advance retail sales for January, published Wednesday, could rebound to 4.5% annual growth for headline sales and 5.4% for sales excluding autos. The contents of this report may highlight the pattern of
household discretionary spending and give clues as to whether or not interest rate cuts have already started to take effect. The Empire State manufacturing survey and the University of Michigan consumer confidence report will give an early indication of
economic sentiment in February. On the balance of payments side, December’s external trade deficit and TICS data will complete the 2007 series. We forecast a cumulative trade deficit of $711bn, lower that $759bn in 2006, and well covered by
$806bn of net-long term securities inflows.

 

The EU publishes its first estimate of Q4 GDP on Thursday, which is likely to provide justification for President Trichet’s less hawkish stance on inflation and his increased concern over slower growth expressed during his press conference following
the ECB’s decision to hold interest rates at 4% last week. Our forecast is for quarterly growth of 0.4%, half the growth rate of Q3. The German ZEW survey published on Tuesday, could confirm a further deterioration in investor confidence in February.

 

Nichola James, Senior Economist