Main U.K. Economic Releases for the Week Commencing 8 March

The British Retail Consortium (BRC) retail sales monitor for February (overnight on Monday/Tuesday) is expected to show a significant bounce in sales after they were hit very hard in January by the heavy snow and freezing conditions. This reflects the fact that consumers tend to delay purchases rather than cancel them altogether, when circumstances affect their ability to go to the shops. Significantly, the already-released Confederation of British Industry (CBI) distributive trades survey showed that the balance of retailers reporting that sales were up year-on-year (y/y) jumped to a 33-month high of +23% in February after sinking to -8% in January from +13% in both December and November.

The consensus is for the BRC to report that total retail sales rose 4.4% y/y in February, while sales are expected to have increased 2.0% on a like-for-like basis (which strips out the effect of additional floor space). The BRC's January monitor showed total sales rising just 1.2% y/y in January, while sales fell 0.7% y/y on a like-for-like basis. This was the worst January performance in the survey's 15-year history and was down substantially from total sales growth of 6.0% y/y in December and a gain of 4.2% y/y on a like-for-like basis.

We continue to suspect that the upside for consumer spending—and hence overall economic growth—will be limited in 2010 as households still face very challenging conditions, notably including high unemployment that is likely to rise further, low earnings growth, high debt levels, and January's value-added tax (VAT) hike. Meanwhile, still-serious concerns about the economic outlook and jobs are likely to maintain consumers' desire to improve their personal finances. Consumers will also be wary that further out they are very likely to face higher taxes as part of the major corrective action that will be needed to rein in the government finances. It has been mooted for example that VAT could rise to 20%. At least, though, the Bank of England seems unlikely to raise interest rates any time soon, so low mortgage rates should continue to support consumers' purchasing power.

RICS Housing Market Survey for February

The housing market survey for February from the Royal Institute of Chartered Surveyors (RICS; overnight Monday/Tuesday) will provide an important snapshot of the current state of the sector. Latest hard mortgage data for January from the Bank of England and house price data for February from the Nationwide and Halifax lenders all point to a downturn at the start of 2010. This may have been heavily influenced by the adverse weather conditions, but it may also be a sign that underlying activity is losing momentum after improving steadily, but gradually through 2009. Certainly, the overall rise in house prices from their early-2009 lows seems out of kilter, with ongoing pretty poor economic fundamentals for the housing market, notwithstanding very low mortgage interest rates. It is very evident that house prices have been propped up markedly by a shortage of supply.

We expect the RICS survey to reveal that the balance of surveyors reporting that house prices increased over the previous three months eased +29% in February from +32% in January and a high of +35% in November. We also suspect that the survey will show that housing activity picked up in February compared with January, when it was hit hard by the snow and freezing conditions, but was still softer than in the final months of 2009. A critical factor for future house price developments will be whether or not the survey indicates that more properties are coming onto the market. The average stock of property on surveyors' books climbed to 65 in January from 63 in December and 61 in November.

Trade Deficit in January

The total trade deficit (Tuesday) is expected to have narrowed to £3.1 billion in January from £3.3 billion in December. Nevertheless, this would still be above the average monthly deficit of £2.8 billion in 2009. The visible trade deficit is forecasted to have narrowed to £7.0 billion in January from £7.3 billion in December. This would still be above the average monthly deficit of £6.8 billion in 2009. It is hoped that the trade deficit will narrow in 2010 as exports increasingly benefit from the combination of sterling's weakness and improving domestic demand in key overseas markets. The trade deficit has been lifted recently by substantially increased car imports resulting from demand being pushed up by the government's car scrappage scheme. Furthermore, recent signs of faltering recovery in the Eurozone are worrisome news for U.K. exporters.

Industrial Production in January

We expect manufacturing output (Wednesday) to have only edged up 0.1% month-on-month (m/m) in January after spiking 0.9% in December. Even so, this would lead to output being up 1.3% y/y in January, due to the sharp drop in output a year earlier. Although latest survey evidence for the manufacturing sector has been pretty decent, output is expected to have been limited significantly in January by the heavy snow and freezing weather. These arctic conditions are expected to have substantially boosted utilities' output, thereby leading overall industrial production to have risen 0.3% m/m after an increase of 0.5% in December. This would reduce the y/y decline in industrial production to a 21-month low of 0.8% in January from 3.6% in December.

It appears that manufacturers are currently benefiting appreciably from leaner stock levels, improved competitiveness in both domestic and foreign markets stemming from the weak pound, and firmer demand in key overseas markets. There are also signs that domestic demand is picking up. Hopefully, therefore, the industrial sector can see decent expansion in the first quarter of 2010 and help the economy to continue to grow, although it must be borne in mind that the sector only accounts for 17.2% of GDP.

By Howard Archer

9 Mar - British Retail Consortium Monitor Total Sales, February (Year-on-Year): not forecast
9 Mar - British Retail Consortium Monitor Like-for-Like Sales, February (Year-on-Year): not forecast
9 Mar - RICS House Price Balance, February: +29
9 Mar - Visible Trade Balance, January (GBP/Month): -7.0
9 Mar - Non-EU Visible Trade Balance, January (GBP/Month): -3.4
9 Mar - Total Trade Balance, January (GBP/Month): -3.1
10 Mar - Industrial Production, January (Month-on-Month): +0.3%
10 Mar - Industrial Production, January (Year-on-Year): -0.8%
10 Mar - Manufacturing Output, January (Month-on-Month): +0.1%
10 Mar - Manufacturing Output, January (Year-on-Year): +1.3%