Pre-Budget Report to Dominate a Particularly Busy Week for UK Data

Weekly Forex Fundamentals | Written by Lloyds TSB | Dec 07 09 11:14 GMT |

Weekly Economic Data Preview This week sees a particularly busy calendar in the UK, featuring the Chancellor's Pre-Budget Report (PBR) and the latest Monetary Policy Committee (MPC) meeting. We look for Bank Rate to remain on hold at 0.5% while the MPC continues with its £200bn programme of asset purchases. The PBR, meanwhile, will be closely-watched as markets focus on government efforts to consolidate the public finances. Elsewhere, there is no shortage of economic data and events taking place in the US. Here, the main highlights include October trade data, latest weekly jobless claims figures, November retail sales and December's preliminary Michigan consumer confidence survey. Following last week's ECB monetary policy deliberations, the euro-zone sees a somewhat quieter week in terms of economic data. With little in the way of aggregate euro-zone data scheduled for release, attention this week turns instead to German, French and Italian industrial production figures. With UK monetary policy decisions currently being made on the basis of fiscal policy formulated back in April's Budget, this week's PBR will be among the most closely watched in years. If the Treasury's PSNB projection for 2009/10 of £175bn looked bad in April, recent monthly data on the public sector finances suggest it could look even worse come Wednesday. Clearly, the bigger picture is how to achieve the goal embodied in the recent Fiscal Responsibility Bill - of halving the fiscal deficit within four years. On the revenue side, much of the build-up to the PBR has centred on a prospective increase in taxation for high earners. Possibilities include a widening in the scope of the new 50p top rate of income tax, increasing National Insurance contributions for top rate taxpayers and also various measures to boost revenue via the Inheritance Tax system. In terms of spending, numerous government departments are likely to see budgets pared back significantly compared with the growth seen in previous years. While the PBR is likely to dominate events in the UK this week December's MPC meeting will, as ever, be carefully watched by financial markets. We look for Bank Rate to remain on hold at 0.5% while the £200bn programme of asset purchases - aimed at boosting nominal economic activity in the economy - continues. Importantly, October UK industrial production data are released this week, where we look for a 0.4% month-on-month increase. But the figures take on added significance, since the October data will provide a guide to Q4 gdp. In the US, ahead of the next FOMC meeting on 16 December, this week features a wave of important economic data including trade, retail sales, initial jobless claims and December's preliminary University of Michigan consumer confidence survey. We look for the US trade deficit to narrow to $32bn in October, in part reflecting US dollar weakness. Meanwhile, last week's better-than-expected nonfarm payrolls figures have prompted a more optimistic mood in terms of labour market prospects. We think that this Thursday's (less high-profile) data on initial jobless claims will show a small (7k) decline, so keeping the four-week moving average on the downward path seen since March. Retail sales figures for November are published on Friday, where we look for a 0.5% m/m rise in the exautos measure. If realised, this would be the fourth consecutive month-on-month increase. But household balance sheet adjustment, continuing job losses and the recent expiry of the so-called 'cash-for-clunkers' incentive scheme does not augur particularly well for consumer activity heading into 2010. There are relatively few euro-zone economic statistics scheduled for publication this week, so attention will shift to various national indicators. Industrial production figures for Germany, France and Italy are all due for release. In Germany, we look for industrial production to rise by 1.2% in October, with robust demand for investment goods as global economic recovery continues, led by emerging Asia. In France and Italy, we also envisage significant month-on-month rebounds in industrial output, of 0.6% and 1.7%, respectively. Full Report in PDF Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. 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