Main U.K. Economic Indicators Week Commencing 10 March

Manufacturing output (out Monday) is expected to have edged up 0.1% month-on-month in January, after falling in both December (by 0.2%) and November (0.1%). Even so, output is seen up just 0.3% year-on-year. Industrial production is similarly seen rising 0.12% month-on-month in January, after contracting 0.1% in December. This would leave production up 0.5% year-on-year in January. Going forward, we expect the manufacturing sector to increasingly struggle as it is buffeted by slowing domestic demand, tighter lending conditions, and elevated energy and raw material prices. Furthermore, we strongly suspect that likely recession in the United States and significantly slowing growth in the Eurozone will weigh down markedly on exports, although manufacturers are likely to benefit from a further overall weakening in the pound over the coming months.

The British Retail Consortium's retail sales monitor for February (out Tuesday) is expected to indicate that consumer spending is increasingly faltering in the face of muted real disposable income growth, tighter lending practices, a substantially softer housing market, lower equity prices, and increased debt levels. Household purchasing power will also be dented by higher utility bills and elevated food prices, while many home owners currently face having to re-fix their mortgages at significantly higher rates. Furthermore, elevated concerns about the economic outlook are likely to lead consumers to tighten their belts. Finally, we suspect that unemployment will start to rise later in 2008. Likely, further gradual Bank of England interest rate reductions will help the consumer, but will only partially offset these major headwinds. The January BRC retail sales monitor was markedly stronger than expected, showing sales up 4.9% year-on-year and up 2.6% on a like-for-like basis (which strips out the effect of additional floor space). We strongly suspect that sales were lifted in January by increasingly pressurized and price conscious shoppers looking to take advantage of genuine bargains in the sales.

Ongoing evidence that the housing market is buckling under substantial pressure from increased affordability constraints and tighter lending practices is expected to come from the Department for Communities and Local Government (for January) and from the Royal Institute of Chartered Surveyors (for February). In particular, we expect the Royal Institute of Chartered Surveyors (RICS) survey to indicate that the balance of surveyors reporting that house prices rose over the previous three months retreated further to -57% in February, from  -54.7% in January. January marked the sixth successive negative balance and was also the lowest reading since November 1992. The RICS survey will also be scanned to see if buyer enquiries are showing any signs of stabilizing after recent extended, marked declines. New buyer enquiries fell for a 14^th successive month in January, and at an increased rate. Specifically, a balance of 35% of surveyors reported a decline, which was up from 25% in December

Finally, the trade deficit (out Wednesday) is expected to be essentially stable at an elevated level in January. While U.K. exporters should increasingly benefit from the recent marked overall decline in the pound, this may not be sufficient to offset weaker demand in foreign markets. At least though, net trade is likely to benefit from U.K. imports being limited by significantly softer domestic demand over the coming months. Meanwhile, the Bank of England will be particularly interested in seeing how much import prices were pushed up in January by elevated oil, commodity, and food prices, as well as the weaker pound.

By Howard Archer

10 Mar - Industrial Production, January (Month-on-Month): +0.1%
10 Mar - Industrial Production, January (Year-on-Year): +0.5%
10 Mar - Manufacturing Production, January (Month-on-Month): +0.1%
10 Mar - Manufacturing Production, January (Year-on-Year): +0.3%

10 Mar - Producer Price Output Inflation, February NSA (Month-on-Month): +0.5%
10 Mar - Producer Price Output Inflation, February NSA (Year-on-Year):  +5.9%
10 Mar - Core Producer Price Output Inflation (ex Food, Tobacco etc.) February SA (Month-on-Month): +0.4%
10 Mar - Core Producer Price Output Inflation (ex Food, Tobacco etc.) February NSA (Year-on-Year): +3.2%

11 Mar - British Retail Consortium Monitor Total Sales, February (Year-on-Year): not forecast
11 Mar - British Retail Consortium Monitor Like-for-Like Sales, February (Year-on-Year): not forecast
11 Mar - DCLG House Prices, January(Year-on-Year): not forecast

11 Mar - RICS House Price Balance, February: -57