Next week could bring evidence that the UK economy has revived. The Office for National Statistics (ONS) could report that gross domestic product (GDP) rose by around 0.3 per cent in January, after a similar rise In December. Although this would leave the economy only 0.1 per cent larger in the last three months than the previous three, this comparison is depressed by the drop in output in November.
One reason for the expansion could be an increase in net exports. The headline figures here were hugely distorted last month by a big export of gold, which was probably just a book-keeping tweak. Excluding erratic items such as these, Wednesday's data should show that the deficit was slightly smaller in the last three months than the previous three, thanks partly to a drop in imports caused by a reduction in precautionary stockpiling.
We might also see a little recovery in the eurozone, where industrial production should recover in January after a 2.1 per cent drop in December, driven largely by a 3.5 per cent fall in German output. Even with this, however, output in the region is likely to be some 3.5 per cent down year on year.
Such signs of revival might, however, be temporary. There’s a danger that output might have dropped back in February because of the coronavirus; this is likely to hit Chinese demand and hence European exports, while Italy’s quarantine measures might directly depress activity.
In this context, the ECB’s press conference on Thursday will tell us how ready it is to loosen monetary policy in order to support the economy. Although policy measures are not widely expected next week, many economists suspect that with inflation well below target and the coronavirus hitting an already-weak economy, the Bank might act soon.
By contrast, the UK should see a policy loosening on the fiscal front. Chancellor Rishi Sunak is expected to use Wednesday’s Budget to announce a net fiscal loosening.
In the US, the main news should be Wednesday’s inflation numbers. These could show slight drops in both the headline and core rates of inflation, to 2.4 and 2.2 per cent, respectively. This means the latter has flatlined since mid-2018, despite the standard measure of unemployment being near a 52-year low, which suggests the trade-off between unemployment and inflation has improved.
