Week ahead 16th January 2017

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This will be an event-packed week for economy watchers. There are a number of key data releases for the UK and some pretty significant political events that markets will be watching closely. The main questions for us this week are:

  • Did inflation continue its ascent at the end of 2016?

  • Is the end of falling unemployment nigh?

  • How will currency markets react to the MPs pronouncements on Brexit?

  • Were UK shoppers spend, spend, spending over Christmas?

  • Who’s the musical line up for the President’s inauguration on Friday?


CPI inflation in November increased to 1.2% - it's highest level for more than two years. As we reported last month, the main driver of the increase was the rise in fuel prices. We don't see this as a one off. Indeed, rises in commodity prices and the eventual pass through of higher prices of imported goods following Sterling's depreciation, should see CPI rise to around 1.5% in December and continue climbing for much of 2017.

Tuesday will also see the release of producer price data for December. No longer a niche economic release; interest in factory gate prices has picked up as Sterling remains weak and volatile. In November, ONS continued to report some hefty increases in input prices - 13% year on year growth. More of the same is our central expectation for December's data, but the gap with growth in output prices is forecast to remain.

We saw from our 2017 Executive Survey that manufacturers are not exactly relaxed about the value of Sterling with 86% of companies we surveyed expressing concern about exchange rate volatility and 80% identifying risks from rising input costs. Moreover, a significant majority of manufacturers see these challenges directly connected to Brexit.   

And speaking of exchange rate movements, the PM is scheduled to make a major speech outlining more details on the government's thinking on its Brexit negotiations. Previous interviews and statements on the subject have sent currency markets into a short term spin, so we might expect similar reactions to any sign that government is leaning towards hard/soft/smooth Brexit etc..

Labour market

Employment data appeared to defy gravity in 2016 as the labour market appeared to show little in the way of ill-effects from the EU referendum. Until the end of last year that is. Our analysis of the employment statistics covering the three months to October showed something of a loss of momentum with two straight months of falling employment. But the drop in the economically active population helped to keep the unemployment rate at 4.8%.

Last month's news on manufacturing employment wasn't too good either, with workforce jobs declining by 25,000 in the three months to September.

One of the big questions for 2017 is how will wages respond to rising inflation and high levels of economic uncertainty? Increasing the average earnings data will be the thing to watch in the labour market data. In addition, EEF's Pay Bulletin covering settlements to December 2016 is out at the end of the week.


If you missed our Exec Survey report last week, you can catch up here.




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