UK growth and inflation are both falling, next week’s numbers could show
On Tuesday, the Office for National Statistics (ONS) could report that consumer prices index (CPI) inflation fell slightly last month, from 3 to 2.9 per cent, largely because price rises for food and petrol last February have fallen out of the annual inflation rate. This will give economists confidence that inflation did indeed peak last year. Producer price numbers should confirm this. Output price inflation should be around 2.7 per cent, compared to a peak of 3.3 per cent back in August.
Other figures will give us reason to expect inflation to continue falling. These should show that wage costs are not adding to inflation. The ONS is likely to say on Wednesday that hours worked fell in the three months to January. This implies that productivity is rising quickly so that efficiency gains have in the past few months offset wage growth – which is likely to be more or less unchanged around 2.5 per cent in year-on-year terms.
That of course means that wages are falling in real terms. We’ll see one effect of this in Thursday’s retail sales numbers. These could show only a small rise in February, which would mean that sales volumes in the past three months were around 0.5 per cent lower than in the previous three.
This might not be the only sign of a slowdown. The Confederation of British Industry (CBI) might say on Wednesday that manufacturing orders and output expectations are both cooling off, albeit from high levels.
Because of all this, the Bank of England's monetary policy committee is likely to leave interest rates unchanged next Thursday.
The slowdown will not, however, be confined to the UK. In the eurozone purchasing managers might say on Thursday that manufacturing growth has fallen to a six-month low and services growth to a four-month low. The same day, Germany’s Ifo might show manufacturing growth in the country slowing to around a nine-month low. All these surveys would, however, be consistent with activity still growing strongly. And their message should be mitigated by a survey from the National Bank of Belgium which should show business confidence holding up.
All eyes will be on the Fed on Wednesday. Economists expect it to raise the Fed funds rate by a quarter point into a range of 1.5 to 1.75 per cent. It might also hint at further rises, albeit at a gradual pace. This will be as much an attempt to normalise rates as a response to inflation, which is barely rising at all.
