UK inflation will take its turn in the glare of the market spotlight next week, with several economists seeing prices easing sharply in coming months to put pressure on the Bank of England to cut interest rates.
Elsewhere, US retail sales and housing starts, and a raft of EU and Chinese trade and industrial data.
As a prelude to the UK’s inflation numbers, Tuesday will see the Office for National Statistics release jobs market figures, where the employment numbers are forecast to rise but the unemployment rate is expected to increase to 4.3% from 4.2%.
Wage growth will be in focus, with average earnings growth seen rising to 7.3% for the three months to Novemb4r from 7.2% a month earlier, with a decline to 6.8% from 7.3% if bonuses are excluded.
Unemployment claims numbers for December are forecast to see a decline too.
Prices day is on Wednesday, with the consumer price index for December expected be 3.8% higher than a year ago, easing from the 3.9% rate in November, with the core CPI rate easing to 4.9% from 5.1%.
In the past week, economists at Deutsche Bank, Investec and elsewhere predicted that CPI will drop below the BoE’s 2% target sooner than previously expected and allow interest rates to come down.
April, said Deutsche’s Sanjay Raja, flagging that various price categories are pushing down more than they were before.
“The energy outlook has shifted dramatically,” he said. “In spring, a hefty cut to energy bills is now expected to bring about a quicker descent to target than we previously assumed, pushing CPI slightly below 2% in April and May.”
Oxford Economics predicted it will return to the 2% target in April and will average 2.1% this year: “Even before the recent falls in oil and gas prices, the Bank of England’s inflation forecasts had looked too high. We expect the BoE to lower its projections significantly in February’s Monetary Policy Report, as it begins to prepare the ground for rate cuts. Lower inflation means we also expect stronger growth in real household incomes and GDP this year.”
ING predicted CPO is now set to fall to 1.6% in May and Investec said it sees inflation dropping to just 1.5% from the third quarter.
“Assuming we get a fiscal boost in March – we forecast the Chancellor’s £13bn headroom will double at the next budget, enabling tax cuts – the Bank of England may be tempted to wait a little longer before cutting rates. We’re forecasting an August cut, though faster-than-expected declines in services CPI and/or wage growth could conceivably see that date come forward,” said ING.
Capital Economics joined in, saying CPI in the UK will fall below the 2.0% target in April and "that would mean inflation in the UK is lower than in the US and the euro-zone for the first time in two years".
As for Red Sea concerns, Liberum analyst Gerald Khoo said the rising number of attacks on shipping has resulted in many ships being diverted, even though most attacks have been unsuccessful.
The alternative routing via the Cape of Good Hope results in delays and additional but excess capacity in the container shipping market "should mitigate the impact and we see limited prospects for this impacting inflation at the economy level", Khoo said.
Around the world
Political events will be the big focus, Deutsche Bank highlighted, pointing to the Taiwanese election, the Iowa caucus in the US on the Republican side, and the World Economic Forum's annual meeting at Davos.
In addition, the bank also said investors are likely to be closely monitor developments in the Middle East following the US and UK strikes against Houthi rebels in Yemen.
Macroeconomic attention will centre on the US consumer with indicators including the retail sales report and the University of Michigan survey.
Further afield, the highlight among a raft of data from China will be fourth-uarter GDP numbers, while inflation will also be in focuses there and Japan.
From central banks, there will be the Fed's Beige Book and ECB's account of the December meeting.
Macro week ahead:
Monday's economic announcements:
Rightmove House Price Index (UK), Industrial Production (EU), GDP (Germany), Chinese 1- and 5-year interest rate decision
Tuesday's economic announcements:
Claimant Count Rate (UK), Consumer Inflation Expectations (EU), ZEW Economic Survey (Germany), CPI (Germany)
Wednesday's economic announcements:
Consumer Price Index (UK), Producer Price Index (UK), Retail Price Index (UK), MBA Mortgage Applications (US), Import and Export Price Indices (US), Retail Sales (US), Retail Sales Less Autos (US), Capacity Utilisation (US), Industrial Production (US), Business Inventories (US), Inflation (EU), Chinese GDP, Unemployment, Industrial and House Price data
Thursday's economic announcements:
RICS Housing Market Survey (UK), Building Permits (US), Continuing Claims (US), Housing Starts (US), Initial Jobless Claims (US), Philadelphia Fed Index (US), Existing Home Sales (US), Crude Oil Inventories (US), Foreign Direct Investment (China)
Friday's Economic announcements:
Retail Sales (UK), Existing Home Sales (US), Michigan Consumer Sentiment (US)