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UK Data

• During the week, Halifax House Prices for January. Previous 1.3%m/m & 5.2%y/y
• Tuesday 9.30am CIPS Services PMI for January. Previous 52.4 index
• Wednesday 12.01am Nationwide Consumer Confidence for January. Previous 85.0 index
• Thursday 9.30am Industrial Production for December. Previous -0.1%m/m & 0.4%y/y
• Thursday 9.30am Manufacturing Production for December. Previous -0.1%m/m & 0.1%y/y
• Thursday 12.00pm BoE MPC Interest Rate Announcement

Sterling finished down on the Dollar and Euro last week after largely treading water for the most part. Retail sales slowed to its weakest rate in 12 months coupled with manufacturing data indicating activity had slowed to a 2 ½ year low. Nationwide house prices fell for a third consecutive month in January, although the building society’s interpretation is that the downward trend is slowing; forecasting 0% growth over 2008. This week’s key event will be the MPC rate announcement on Thursday, when Mervyn King faces the dilemma of whether to stimulate lagging growth, in spite of recent inflationary pressures. The decision is by no means clear cut, however the futures market has effectively priced in a cut of 0.25%.

US Data

• Monday 3.00pm Factory Orders for December. Previous 1.5%m/m
• Tuesday 3.00pm ISM Non-Manufacturing for January. Previous 54.4 index
• Thursday 1.30pm Initial Claims till 2nd February.
• Thursday 3.00pm Pending Home Sales for December. Previous -2.6%m/m

The Federal Reserve no longer wants to be criticised for doing too little too late, and for that reason, they cut interest rates by 0.5% on Wednesday to 3.0%.  Within nine days, the Federal Reserve has lowered interest rates by an unprecedented 1.25%. Before the cycle is over, the expectation is that the Federal Reserve will bring US interest rates down to at least 2.50%. Cementing a disappointing week for the Dollar, the Labour Department report on Friday came in much weaker than anticipated. However, the national unemployment rate eased to 4.9% from 5%. This week, the market’s attention focuses on the services sector of the economy, following stronger than expected manufacturing data last week.

EU Data

• Monday 10.00am PPI for December. Previous 0.8%m/m & 4.1%y/y
• Tuesday 9.00am Flash Services PMI for January. Previous 52.0 index
• Tuesday 10.00am Retail Sales for December. Previous -0.5%m/m & -1.4%y/y
• Thursday 12.45pm ECB Interest Rate Announcement, followed by news conference at 1.30pm

Last week the Euro strengthened against both Sterling and the Dollar on the back of sturdy manufacturing data and a pick up in inflation. Eurozone inflation ticked up to a 14 year high of 3.2%, strengthening the European Central Bank's case for a hard-line stance on future interest rate moves. The figure was driven by the rise in energy and food prices. December unemployment remained unchanged at 7.2% from November, slightly above expectations but holding at an all time low. Despite the US Federal Reserve's moves to slash US borrowing costs, the ECB is expected to keep its main interest rate unchanged at 4% this week. The latest inflation data could encourage Jean-Claude Trichet, ECB president, to repeat warnings that a rise still remains possible.

Interest rate outlook