Week ahead 20 March

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After last week’s data lull, the calendar looks slightly fuller this week with the release of inflation and world trade statistics:


Inflation to hit Bank of England 2% target

CPI inflation has been steadily creeping up over the past few months, rising by 1.8% over the year to January 2017, its fastest rate for two and a half years.  We’re likely to see another month of rising inflation in February, with the annual rate likely to come in at slightly above the Bank of England’s 2% target, as the drag from January clothing discounts unwinds.

The simultaneous deceleration in average weekly earnings, which slowed to just 2.2% in January, could mean we get negative real income growth in February for the first time since September 2014. This is likely to weigh on consumer spending and in turn on UK economic growth.

Inflationary pressures also mean ballooning costs for producers. The sterling depreciation and rising energy prices have pushed up the cost of imported materials, with input prices for manufacturers increasing by a staggering 20.5% in the year to January. This was the fastest rate of increase since…wait for it…September 2008.

Naturally manufacturers are putting up output prices, which increased by 3.5% over the same period, although not by enough to relieve pressure on profit margins. In any case, we don’t expect these pressures to ease significantly in February and manufacturers will continue to pass on the cost to customers, eventually feeding through to CPI inflation too.  


Is world trade rising from its ashes?

One of the key macroeconomic trends over the past few years has been the significant slowdown in global trade. Multiple explanations have been thrown about to explain this weakness; slow demand, changing global value chains, rise in protectionism and restricted access to finance, among others. Finding an answer to this difficult question is obviously beyond the scope of our week ahead blog.

But on Thursday we will get a taster of world trade activity in the first month of 2017. Recent data has shown somewhat of an improvement in world trade, with the CPB world trade monitor increasing by 1.1% in the final quarter of 2016. We have reason to believe this should continue at the start of 2017, with our Manufacturing Outlook Survey showing consistent improvements in export demand and China’s Customs Bureau statistics showing a staggering 25.2% year on year increase in Chinese imports in January.






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