Weekly Economic Data Preview

BoE MPC to Provide Further Detail Behind Decision to Halt QE

Following on from last week's decision by the MPC to halt its programme of quantitative easing, attention will shift to the detail of its quarterly Inflation Report (published on Wednesday), which would have been a key input into the MPC's deliberations. Key themes arising from the statement accompanying the policy decision announcement was that the Committee thought recent monetary policy initiatives would continue to “impart a substantial monetary stimulus” to the economy, although it acknowledged that should the recovery falter, it could restart the programme of asset purchases. We expect the detail of the Inflation Report to strike the same tone and show that the MPC is very much in “wait and see” mode. On dataflow, the BRC retail report is released on Tuesday. The January CBI retail report was downbeat, with the VAT rise and inclement weather negatively impacting activity. Our forecast for a two percentage point fall in the annual rate of BRC total sales growth (to 4%) is also a reflection of these factors. We expect the headline trade balance (also Tuesday) to be unchanged at £6.7bn, while industrial production data (Wednesday) are expected to post a 0.3% decline in December. That would be consistent with the sectoral output data within the ONS's preliminary GDP estimate released last month, which showed that the industrial sector grew 0.1% over Q4.

Financial markets will be closed in the US on Monday for the Presidents' Day holiday. Although there are no major economic releases on Tuesday, the sale of $40bn of 3yr notes by the Treasury will be closely watched. Given the recent weakness of global equities, we expect to see strong appetite from investors. The main data highlight this week is provided by the January retail sales figures on Thursday, which will provide an early pointer for consumer spending and growth prospects in the first quarter. We look for a modest gain of 0.3% in headline retail sales and excluding autos of 0.5%, rebounding after surprise falls in December. It is worth highlighting though that the monthly data are notoriously volatile. The University of Michigan consumer sentiment index, published on Friday, is expected to show a further modest gain in February, reflective of the improving labour market. We expect the headline index to breach the 75 level for the first time since January 2008. However, after the news of a further fall in non-farm payrolls last month, focus will also be on the latest initial jobless claims data on Thursday, particularly following the surprise gain seen last week. We look for a sharp fall to 445K in the week to February 6, from 480k previously. The other major release in the US this week is the December trade balance on Wednesday. We look for a modest narrowing in the trade deficit to $36bn, from $36.4bn, on stronger exports. The data will also be used to refine estimates of US Q4 2009 GDP growth.

At the recent ECB's press conference, Jean-Claude Trichet was noticeably more upbeat on the subject of Greece and the efforts being made to repair its public finances. So there was more than a touch of irony when stock and bond markets registered significant falls shortly afterwards, apparently on the back of concerns over contagion effects from the eurozone periphery. As far as the spread of 10-year government bond yields over equivalent bunds is concerned, Portugal and Spain have also moved into the limelight. Preliminary Q4 GDP releases feature strongly in this week's euro-zone economics data calendar. At the aggregate euro area level, we look for an outturn of +0.4% quarter-on-quarter, yielding an annual rate of -1.9%. National data from Germany, France and Italy are published on the same day, Friday. Broadly speaking, exports and inventories remain the key drivers of euro-zone economic activity, although these components clearly do not guarantee seamless recovery. Other economic releases include December industrial production figures for the euro-zone (along with national data for Germany, France and Italy).

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