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The Week Ahead ...
The Week Ahead

09:30am Tuesday 21 January-M4 Money Supply Growth (Dec). M4 money supply grew 1.1% in November, 10.8% y-on-y, well above the government's 4-9% target range. In its latest inflation report, the Bank expressed the view that the current rate of M4 growth is 'most unlikely to be compatible with the inflation target in the medium term'. The consensus expects the annual rate of growth to be little changed in December, which implies a 0.9% monthly rate of increase.

11:30am Tuesday 21 January-CBI Industrial Trends Survey (Jan). December's survey suggested sterling strength was already affecting the manufacturing sector with export orders at their lowest level since February 1994. Economists will look out for further currency effects in January, especially given an unexpected weakness in the latest official data. On the other hand, the strength of sterling should keep price pressures low.

09:30am Wednesday 22 January-Retail Sales (Dec). Volumes rose by 0.7% in November, up 3.9% y-on-y. December's figure may be less buoyant - the consensus expects a 0.3% gain - especially given some companies' comments about a disappointing Christmas period and the relatively weak CBI Distributive Trades survey for the pre-Christmas period.

The Week Just Past

Producer input prices continued to slide in December, helped by sterling's rally. Prices fell 0.5% m-on-m, and were down almost 6.0% y-on-y. Output prices rose 0.5% m-on-m, boosted by the increase in excise duties implemented in November's Budget, but fell from 2.1% to 1.7% on an annual basis.

Unemployment fell more than 45,000 in December to 1.884 million, following November's massive 95,000 decline. The unemployment rate dropped from 6.9% to 6.7%. Recent figures are distorted by the introduction of the Job Seekers Allowance, but the trend rate of decline in unemployment does seem to have picked up in line with stronger output growth.

Unit wage cost growth eased from 4.6% in October to 4.2% in November, while average earnings growth remained unchanged at 4.0% for the fifth consecutive month.

Headline inflation rose 0.3% m-on-m in December, down from 2.7% to 2.5% y-on-y. The government's targeted rate, ex mortgage interest payments, also rose 0.3% m-on-m, easing from 3.3% to 3.1% on an annual basis.

The biggest contribution to lower inflation in December was the petrol price, which rose less sharply following November's Budget than in 1995. The strong pound, which has significantly reduced costs at the factory gate, also helped restrain prices. The biggest positive influence on inflation in December came from the service sector, a trend that looks set to continue over the coming months.

Interest rates remained unchanged at 6.0% following Wednesday's monetary meeting between the chancellor of the Exchequer and the Governor of the Bank of England. Clarke said that the strength of sterling was key in his decision to leave monetary policy on hold. Before the meeting economists had been fairly evenly divided on the prospects for a rate hike.

The PSBR for December was£2.119bn - there were£260m in privatisation receipts. The consensus was expecting a rather smaller deficit and this figure again highlights that, whoever wins the forthcoming general election, more fiscal tightening is needed to put the public finances back onto a sustainable path. The cumulative PSBR so far this year is£16.1bn, compared to£23.0bn in the first nine months of 1995/96.

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