Week ahead 5th February

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There are two key days for us when it comes to data releases this week – updated forecasts and signals of future policy change from the Bank of England on Thursday and ONS wrap up the trade and production data for 2017 on Friday.

Super Thursday

This one is unlikely to be the media spectacle of the last one, when Bank Rate was increased for the first time in a decade. Economists (including us) expect no change at this month’s meeting.

But there’s still the Inflation Report to plough through and (if the moments not already passed) the exchange of correspondence between the Governor and the Chancellor following last November’s CPI reading of 3.1%.

As always, there are some areas we’ll be on the lookout for to provide a steer on the timing for future rises. These revolve around some of the main data developments since the last report – stronger than expected GDP growth at the end of last year, recent moves in the oil price and Sterling developments.

In sum, the increase in commodity prices – evidenced in the manufacturing PMI at the start of the year – and the appreciation of Sterling will likely have a negligible impact on the Committee’s judgement about the path of inflation.

Will the greater resilience of the economy, higher investment and buoyant global outlook lead to a more upbeat tone in the Bank’s outlook for the UK this year (and beyond)? And will that prompt a reappraisal of their projections for the labour market, notably earnings? On this latter point, it feels like were in a bit of a blind spot until we get some numbers for the first major private sector pay round of the year – for manufacturing, EEF will have some preliminary figures later this month.

Index of Production

From one relatively uncertain data point to almost a racing certainty – production data at the end of the week.

We know it was a good q4 for manufacturing from last month’s GDP release, which will mean an eighth consecutive month of expansion for the sector in December – about 0.3% seems likely. If this follows the pattern of recent months, growth should fairly broad based across the manufacturing industry.

The full year picture is likely to confirm that sectors such as other transport, electronics and food had a cracking 2017. But textiles, printing and chemicals – not so much.

Trade

Our Manufacturing Outlook survey balances for export sales were at record highs at the end of last year and the official trade data should confirm that export values rose at a double digit rate last year. Across total trade we might also see a further, gradually narrowing of the trade deficit in 2017q4.

 

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Chief Economist

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