Key U.K. Economic Releases Week Commencing 14 April

Consumer price inflation (out Tuesday) is forecast to have moved further above the Bank of England's target level of 2.0% in March. We expect consumer price inflation to have climbed to an 11-month high of 2.7% from 2.5% in February, pushed up by rising utility bills and elevated food prices. Higher duties on alcohol imposed in March's budget are also expected to have had an upward impact. It seems highly likely that consumer price inflation will reach 3.0% in the summer, before starting to fall back, as softer growth dilutes underlying inflationary pressures. Core consumer price inflation is forecast to edge up to a still very muted 1.3% in March from an 18-month low of 1.2% in February. Meanwhile, underlying retail price inflation is forecast to have risen to 3.8% in March from 3.7% in February, while headline retail price inflation is seen stable at 4.1%. 

The British Retail Consortium's retail sales monitor for March (out Wednesday) is expected to indicate that consumer spending is now faltering significantly in the face of muted disposable income growth, tighter lending conditions, a substantially softening housing market, lower equity prices, and increased debt levels. Household purchasing power is also being dented by higher utility bills and elevated food prices, while many homeowners are re-fixing their mortgages at significantly higher rates as the deals they took out a couple of years ago expire. Furthermore, elevated concerns about the economic outlook are probably leading to an increasing number of consumers tightening their belts. On top of this, 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 February BRC retail sales monitor showed total retail sales growth of 3.9% year-on-year (y/y). On a like-for-like basis (which strips out the effect of additional floor space), annual retail sales growth was 1.5% y/y in February. These growth rates were modestly below the 2007 monthly averages of 4.3% y/y for total sales and 2.2% y/y for like-for-like sales.  

The Bank of England will be particularly hoping that average earnings growth (out Wednesday) remained muted in February, given its concern that elevated - and rising - inflation expectations, coupled with a currently still tightening labor market, could yet lead to pay moving up appreciably. The early 2008 average earnings data are of particular interest to the Bank of England, as they reflect the first of the 2008 pay settlements. Latest survey evidence generally indicates that pay moderation has continued so far in 2008. We expect underlying average earnings growth (excluding bonus payments) to have been limited to 3.7% in the three months to February. Headline average earnings growth is seen modestly lower at 3.6% in the three months to February, reflecting lower bonus payments. These levels would both be well below the 4.5% level that the Bank of England considers broadly consistent with its 2.0% inflation target.

Meanwhile, claimant-count unemployment is expected to have fallen at a reduced rate of 3,000 in March, as slowing growth and weaker business confidence starts to impact. The unemployment rate is seen stable at 2.5% on the claimant count measure in March and at 5.2% on the International Labour Organization measure in February. Unemployment is a lagging indicator and we suspect that slowing growth will take an increasing toll on the labor market as 2008 progresses. Significantly, latest labor hiring surveys are clearly softer overall. 

Ongoing evidence that the housing market is buckling under substantial pressure from increased affordability constraints and tighter lending practices is expected to come on Tuesday from the Department for Communities and Local Government (for February) and from the Royal Institute of Chartered Surveyors (for March). 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 -70% in March, from -64.1% in February and -49.1% at the end of 2007. February not only marked the seventh successive negative balance, but it was also only marginally above the record-low balance of -64.5% seen in June 1990. 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 15^th successive month in February, and at an increased rate. Specifically, a balance of 37% of surveyors reported a decline, which was up from 35% in January and 25% in December. Meanwhile, the number of properties on the market rose by 8.5% month-on-month in February, which was the fifth successive increase of 8% or more. A sharp rise in the number of properties coming on to the market in March could be a sign that a growing number of people are trying to sell their houses now due to fears they will lose further value over the coming months and become increasingly difficult to sell.

Mortgage lending and approvals data for February are released by the Building Societies Association and the Council of Mortgage Lenders during the week. We expect this to show that housing market activity continues to be substantially undermined by fewer and more expensive mortgages being available, as well as the additional affordability constraints on potential house buyers stemming from elevated house prices and muted disposable income growth. However, these mortgage data figures will not reflect the further tightening of conditions and the substantial withdrawal of mortgages available that has occurred in April.

Finally on Friday, the public finances for March are released. We suspect that there will have been a modestly increased deficit compared to a year earlier. Moderating economic growth will take an increasing toll on VAT and corporation tax receipts, while weakening housing market activity and softening prices will hit stamp duty receipts. We expect the Public Sector Net Borrowing Requirement (PSNBR) to have come in at £7.6 billion in March, compared to £7.1 billion year earlier. If the PSNBR comes in as we expect and no revisions are made to earlier months, this would mean that the PSNBR amounted to £35.4 billion in fiscal 2007/08. This would be modestly below the £36.0 billion level estimated by Darling in last month's budget. However, it looks increasingly unlikely that Darling will be able to keep the PSNBR down to £43.0 billion in 2008/09. This is based on GDP growth of 1.75-2.25% in 2008 and 2.25-2.75% in 2009. However, Global Insight forecasts GDP growth to be limited to 1.6% in 2008 and 1.5% in 2009. Furthermore, sharply reduced housing market transactions and lower house prices will substantially hit stamp duty receipts.

By Howard Archer

14 April - Producer Price Output Inflation, March NSA (Month-on-Month): +0.5%
14 April - Producer Price Output Inflation, March NSA (Year-on-Year): +5.6%
14 April - Core Producer Price Output Inflation (ex Food, Tobacco etc.) March SA (Month-on-Month): +0.4%
14 April - Core Producer Price Output Inflation (ex Food, Tobacco etc.) March NSA (Year-on-Year): +3.0%

15 April - British Retail Consortium Monitor Total Sales, March (Year-on-Year): not forecast
15 April - British Retail Consortium Monitor Like-for-Like Sales, March (Year-on-Year): not forecast
15 April - DCLG House Prices, February(Year-on-Year): not forecast

15 April - RICS House Price Balance, March: -70 

15 April - Consumer Price Inflation, March (Month-on-Month): +0.7%
15 April - Consumer Price Inflation, March (Year-on-Year): +2.7%
15 April - Core Consumer Price Inflation (ex Food, Drink, Tobacco), March (Year-on-Year): +1.3%
15 April - Retail Price Inflation, March (Month-on-Month): +0.7%
15 April - Retail Price Inflation, March (Year-on-Year): +4.1%
15 April - Underlying Retail Price Inflation, March (Month-on-Month): +0.7%
15 April - Underlying Retail Price Inflation, March (Year-on-Year): +3.8%

16 April - Claimant Count Unemployment Rate, March (%): 2.5%
16 April - Claimant Count Unemployment Change, March ('000s): -3
16 April - International Labour Organization Unemployment Rate, February (%): 5.2%
16 April - Average Earnings including bonus, February (3-Month/Year): +3.6%
16 April - Average Earnings excluding bonus, February (3-Month/Year): +3.7%