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Next week's economics: 20-24 March

Next week's economics: 20-24 March

Britain's retailers are in trouble, next week's figures could show.

Although official figures on Thursday might show a small rise in retail sales volumes in February, this would probably only partially reverse a big drop since October. As a result, sales in the last three months compared with the previous three might be down by over 2.5 per cent. This would be the largest such drop since current records began in 1996.

The same day, the CBI will give us an idea about what happened to sales in March. These are likely to show only moderate year-on-year growth, consistent with a sharp slowdown since the autumn.

On Tuesday, we'll see one reason for this. The ONS is likely to report that CPI inflation has risen to 2 per cent, its highest rate since December 2013. The CPIH inflation rate - which includes some housing costs and which the ONS will report more prominently from now on - is likely to rise to around 2.2 per cent.

Figures the same day are likely to show that manufacturers' input costs are rising by more than 20 per cent year on year, and that as a result of this output price inflation has risen to 3.5 per cent. This is likely to feed into CPI inflation in the next few months.

All this is depressing retail sales not just by squeezing wages, but by increasing uncertainty and by reducing real wealth for many people who hold cash but not equities.

Is this weakness being offset by strength in manufacturing? Tuesday's CBI survey will suggest so. It is likely to show that order books and output expectations are high - although it too will point out that prices are rising sharply. How much comfort we should take in this is, however, unclear. Manufacturing is only 10 per cent of the economy, and globalised supply chains mean that higher output sucks in imports, resulting in only a small rise in net output.

Manufacturing's strength is not just the result of the weak pound. It's also due to a stronger world economy. Next week's numbers will remind us of this. Flash purchasing managers' surveys could show that manufacturing growth in the eurozone is at its best since June 2010, while the services sector is doing better than at any time since March 2011.

The same day, US figures could show a rise in durable goods orders, consistent with the economy continuing to expand moderately.

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By Chris Dillow,
16 March 2017

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Chris Dillow

Chris spent eight years as an economist with one of Japan's largest banks. Here, he provides insightful commentary on the latest economic news and data, along with thought-provoking articles about investor behaviour.

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