After last week’s absence of data releases there is rather more to keep us busy this week. On the statistics front ONS will be publishing consumer and producer prices on Tuesday and we’ve labour market data on Wednesday. On Thursday the European Council meets, which everyone’s hoping will lead to some decisions on a transition period as we leave the EU. Also on Thursday we have the MPC’s decision on interest rates.
So kicking off on Tuesday with inflation releases. On the consumer prices front CPI is expected to fall back from the 3% registered in January. The decline reflects the unwinding of the effects of Sterling’s depreciation; this time last year CPI jumped from 1.8% in January 2017 to 2.3%.
The pace of the decline over the rest of this year will be driven by a continuation of Sterling’s pass through fading and also the evolution of input costs and commodity price developments. So it’ll be worth keeping an eye out for movements in factory gate prices too. Output price inflation has also been easing, but with our 2018q1 Manufacturing Outlook survey showing a rebound in the balance of companies raising prices in the past three months following increases in commodity prices, we are not taking the downward trajectory of factory gate inflation for granted.
Labour market developments
Last year ended with a pick up in the unemployment rate – from 4.3% to 4.4%, the first increase since May 2015. This month’s data will shed a bit more light on whether the rise in the number of unemployed people in the three months to December is a blip or the start the reversal of the downward trend of the last couple of years. In our judgement, the former seems more likely, as activity indicators and surveys have continued to point to positive recruitment plans.
Of particular interest to us is the first release of manufacturing workforce jobs in the final quarter of 2017, which we expect to have seen further gains – again in line with reports from manufacturers in our Manufacturing Outlook survey.
And, of course, what is happening to pay. ONS labour market data will have average earnings growth for January – which for many sectors will capture the pace of pay growth in one of the main bargaining months of the year. EEF’s Pay Bulletin showed limited wage inflation in the three months to January, with average settlements coming in at 2.4%. We’ve had more companies report their January settlements and we’ll be publishing any revisions to that rate on Wednesday.
Bank of England
The Bank of England’s MPC meets this week. Last month’s Inflation report gave markets a clear steer that “monetary policy would need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period than anticipated.” However, we don’t take that to mean this month, nor do we expect there to be divisions on the Committee on this occasion, unless there are some big surprises on the inflation and wage front this week.
If we’re looking for surprises this week, here’s hoping it’s not this week’s European Council meeting that delivers them. This meeting is all about nailing down details on the implementation (or transition) period – how long, what does it mean in practice etc – that can allow talks to progress to the finer detail of the UK’s future economic partnership with the EU. Inevitably this is likely to throw a spotlight on the thornier issues, such as the Irish border question. Tricky as these may be businesses will be hoping for a large dose of clarity in order to move forward with investment decisions in the UK this year.