Poor weather to cast cloud over upcoming data

By Adam Chester, Jeavon Lolay and Mark Miller

The UK Monetary Policy Committee (MPC) reconvenes this week amid continued bewilderment as to why the Committee failed to raise the QE target last month, despite the benign medium-term inflation forecast outlined in the Bank of England’s latest Inflation Report.

Last week’s upward revision to Q4 GDP, from 0.1%q/q to 0.3%q/q, may provide some ex-post justification for the decision although, on closer inspection, the improvement was driven predominantly by stocks and government spending, neither of which is expected to be sustained.

Nevertheless, the upward revision, coupled with the temporary surge in CPI inflation, suggests little prospect of any change in policy this week. We expect Bank rate to be left unchanged at 0.5%, with the suspension of the APF almost certain to be kept in place. On the UK data front, the February PMIs are likely to take centre stage. After the sharp improvement in January, we expect the manufacturing PMI to drop back a little (from 56.7 to 56.5).

Meanwhile, the services PMI is forecast to have picked up (from 54.5 to 55.2) after the weather-distorted drop in January. The PMIs point to continued growth in GDP in Q1 2010, although in recent quarters the correlation between these surveys and the official GDP data has not been particularly strong.

The PPI and net consumer credit reports are also due. Producer prices are expected to show both output and input prices rose by 0.2% on the month in February, while the rise in VAT and the cold weather point to a renewed fall in net consumer credit last month.

Also this week, we should see confirmation of the weather-impacted downturn in the housing market, with mortgage approvals forecast to have dropped sharply last month.

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* All charts are sourced to Lloyds TSB Corporate Markets Economic Research, Bloomberg, IMF and Datastream

 


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