Key U.K. Economic Releases for Week Commencing 8 September

The British Retail Consortium's retail sales monitor for August (out overnight on Monday/Tuesday) is expected to add to the evidence that consumers are significantly reining in their spending—either out of choice or out of necessity—in the face of serious pressures. Consumers are being hit by a myriad of factors, notably muted disposable income growth, a serious squeeze on purchasing power coming from sharply rising utility bills and elevated food prices, tight credit conditions, higher mortgage repayments for many householders as a result of the credit crunch, sharply falling house prices, higher debt levels, and increasingly rising unemployment. Furthermore, major consumer concerns over the economic outlook calls for increased caution over spending levels. The Confederation of British Industry (CBI) distributive trades survey for August showed that a balance of 46% of retailers reported that sales were down year-on-year in August, which was the weakest reading since the survey began in 1993. The July BRC retail sales monitor showed that total retail sales growth was limited to 1.7% year-on-year in July, while sales fell 0.9% year-on-year on a like-for-like basis (which strips out the effect of additional floor space).

Manufacturing output (out Tuesday) is expected to have fallen by a further 0.1% month-on-month in July, after plunging 0.5% in June. Consequently, output is projected to have fallen by 1.1% year-on-year. Industrial production is seen falling by 0.2% month-on-month in July, as it was further dragged down by the starting off some maintenance work in North Sea oilfields. This would lead to production being down 1.5% year-on-year in July.

Indeed, the manufacturing sector appears firmly on course for further contraction in the third quarter after output fell by 0.4% quarter-on-quarter in the second quarter, which would put the sector in recession. August survey evidence from the CBI, in particular, and the manufacturing purchasing managers was very weak. Manufacturers are being hit hard by slowing domestic demand, weakening activity in key export markets, elevated input prices and tight credit conditions. While the marked depreciation of the pound is providing a much-needed boost to UK manufacturers, this is being countered by substantially weakening domestic demand in the Eurozone and a still very soft U.S. economy.

More grim news on housing market and activity is expected to come from the Royal Institute of Chartered Surveyors survey for August (out on Wednesday). We expect the RICS survey to indicate that the balance of surveyors reporting that house prices increased over the previous three months to relapse back to -87% in August, after improving modestly to -83.9 in July from a survey (which started in January 1978) low of -94.7% in April. August will be the 12^th successive negative balance and still one of the weakest on record. The RICS survey is also likely to show that housing market activity remains weak across the board, be it relating to buyer enquiries, completed house sales, or surveyors' confidence.

Major downward pressure on house prices continues to come from extremely weak market activity, stretched buyer affordability, and tight lending conditions. Very negative housing market sentiment heightens the risk that house prices will continue to fall sharply for some time to come. In addition, unemployment is now rising at an accelerating rate, which increases the likelihood that people will have to sell their house for "distressed" reasons. This would lead to more houses coming on to the market and would be liable to depress prices. Given these very poor fundamentals for the housing market, it is unlikely that the recently announced government measures to support the housing market will have a significant impact in stabilizing activity or prices.

The trade deficit (out Thursday) is expected to have narrowed modestly in July. While U.K. exporters are benefiting from the markedly weaker pound, this is being countered increasingly by softening domestic demand in key foreign markets. In particular, the Eurozone is now in serious danger of falling into recession, while the United States continues to flirt with recession. Nevertheless, net trade is likely to benefit from U.K. imports being limited by significantly softer domestic demand over the coming months. Meanwhile, import prices are likely to have been pushed up further in July by elevated oil, commodity, and food prices, as well as the weaker pound. The recent sharp retreat in oil prices and lower commodity prices is unlikely to show up in the import price data until August. 

By Howard Archer

8 Sep - Producer Price Output Inflation, AugustNSA (Month-on-Month): +0.2%
8 Sep - Producer Price Output Inflation, August NSA (Year-on-Year): +10.4%
8 Sep - Core Producer Price Output Inflation (ex Food, Tobacco etc.) August SA (Month-on-Month): +0.3%
8 Sep - Core Producer Price Output Inflation (ex Food, Tobacco etc.) August NSA (Year-on-Year): +6.5%

9 Sep - British Retail Consortium Monitor Total Sales, August (Year-on-Year): not forecast
9 Sep - British Retail Consortium Monitor Like-for-Like Sales, August (Year-on-Year): not forecast

9 Sep - RICS House Price Balance, August: -87%

9 Sep -Industrial Production, July (Month-on-Month): -0.2%
9 Sep - Industrial Production, July(Year-on-Year): -1.5%
9 Sep - Manufacturing Output, July (Month-on-Month): -0.1%
9 Sep - Manufacturing Output, July (Year-on-Year: -1.1%