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The Week Ahead ...
The Week Ahead

Mon 23 Dec. Minutes of the 30 October monetary meeting. Should make interesting reading, revealing the thinking behind October's 25bp interest rate hike. The minutes may also give some indication of how much pressure must be applied to the Chancellor to force him to raise rates again before the election.

Tues 24 Dec (09:30). Global Trade Balance (Oct)/Non-EU Trade Balance (Nov). October's non-EU deficit of £424m was much better than expected, and should contribute to a respectable global trade figure for that month. Exports have been growing strongly despite weak European demand, although the most recent CBI survey suggests sterling strength has begun to hit demand.

Tues 31 Dec (09:30). M0 Money Supply (Dec). Like broader measures of the money supply, M0 is growing very rapidly, consistent with the current retail sales mini-boom, and adding to pressure on the Chancellor to tighten monetary policy.

Thurs 2 Jan (09:30). National Purchasing Manager's Survey (Dec). The last survey suggested sterling strength is depressing the price of raw materials, but there was no sign of a negative impact on export orders. However, there were anecdotal complaints about sterling strength, and December's survey is likely to give clearer evidence of this.

Fri 3 Jan. Halifax House Price Index (Dec). Annual house price inflation should be maintained at around 7%.

The Week Just Past

On Monday the Conservative government won the vote on the European Union's fisheries policy by 316 votes to 304, in its first major test since losing its majority. The Ulster Unionists abstained in the vote.

However Labour and Liberal Democrat MPs attacked the government for underhand methods of securing a majority, evidence that the political background will become increasingly acrimonious as the election date nears.

November's PSBR was broadly in line with expectations, standing at £2.6bn. This figure follows a debt repayment of £4.4bn in October, and takes the cumulative total for the year so far to £13.9bn.

November's figure was flattered by receipts from the sale of MOD married quarters. Although the government is currently on line to achieve its £26bn financial year target, there could be some much worse figures in the last couple of months of the period, traditionally a time when government spending is high.

The number of unemployed people in the UK fell much more sharply than anticipated in November. A decline of 95,800 reduced the unemployment rate from 7.2% to 6.9% and the jobless total to 1.9mn.

Underlying average earnings growth remained unchanged at 4.0% in October, while unit wage cost growth eased from 4.7% to 4.6%. Although average earnings growth has remained steady for several months now, the service sector, where output has raced ahead in the last year, has seen underlying pay growth accelerate from 2=% to 4% over the same period.

The volume of retail sales grew 0.7% in November, 3.9% y-on-y. The clothing and footwear sector continues to be one of the strongest growing component of sales, and some further resumption of retailer pricing power is inevitable.

M4 money supply increased by 1.1% m-on-m in November, 10.8% y-on-y, above market expectations, and accelerating further from 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'.

In its latest half yearly report, the OECD said the prospects for sustained growth and low inflation in the UK were the best for 30 years, helped by buoyant consumer spending and a recovery in investment.

In the third quarter the UK's current account recorded a small deficit of £71mn, while the second quarter surplus was revised down from £792mn to £344mn. Despite this downward revision, the UK's current account balance has been much more favourable than anyone had hoped for at the beginning of the year.

It was assumed that stronger economic activity would suck in significantly more imports, while reducing export competitiveness.

However, in the event export performance has been impressive. The danger for the UK now is that sterling appreciation will dampen export demand, while import demand will grow more rapidly as domestic capacity constraints rise.

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