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UK Data

• Monday 9.30am PPI Input Prices for January. Previous 0.5%m/m & 11.2%y/y
• Monday 9.30am PPI Output Prices for January. Previous 0.5%m/m & 5.0%y/y
• Monday 9.30am World Trade Balance for December. Previous -£7.4bn
• Tuesday 9.30am CPI for January. Previous 0.6%m/m 2.1%y/y
• Wednesday 12.01am RICS House Price Survey for January. Previous -49.1 index
• Wednesday 9.30am Average Earnings for December previous 4.0 3m avg.
• Wednesday 10.30am Bank of England Inflation Report

Last week saw the Bank of England cut interest rates by 0.25% to 5.25% in-line with market expectations. In the accompanying statement, the Central Bank indicated that it had taken action in order to firm up the UK economy in the face of weakening demand and continued disruption in financial markets. However, there was also warning that inflation remains elevated and risks remain to the upside, especially in the near term. Whilst the outcome was as expected, Sterling was already under pressure after figures showed a surprise fall in UK industrial output earlier in the session. Attention now turns to this week’s CPI figure and BoE inflation report to gain a clearer picture of inflationary risks going forward and gauge whether or not the MPC has scope to further loosen monetary policy in the months ahead.

US Data

• Wednesday 1.30pm Retail Sales for January. Previous -0.4%m/m
• Thursday 1.30pm Trade Balance for December. Previous -$63.1bn
• Friday 1.30pm EmpireState Survey for February. Previous 9.0 index
• Friday 2.00pm Treasury International Capital System (TICS) for December. Previous $90.9bn
• Friday 2.15pm Industrial Production for January. Previous 0.0%m/m
• Friday 3.00pm University of Michigan Sentiment Survey for February. Previous 78.4 index

Last week saw the Dollar strengthen against both Sterling and the Euro, despite significantly weaker than expected domestic services activity. The Dollar’s resilience in the face of recent dismal US economic data could largely be put down to the fact that a lot of the bad news was already priced in. With the majority of data released on Friday, the market will pay particular attention to January’s industrial production figure for any indication of further slowdown. January’s retail sales data will also be of particular interest after December’s dismal figure.

Euro Data

• Tuesday 10.00am ZEW Survey (Economic Sentiment) for February. Previous -41.6
• Wednesday 10.00am Industrial Production for December. Previous -0.5%m/m
• Thursday 10.00am GDP for Q4 (Flash Estimate). Previous 0.8%q/q & 2.7%y/y

The Euro fell aggressively against the US Dollar last week; after Jean-Claude Trichet, ECB president, appeared to abandon the Bank’s monetary tightening bias. The ECB elected to keep rates on hold at 4% after its policy meeting, as was widely expected. However, it was the post-decision press conference from Trichet that was the focus of attention. The ECB had previously maintained a hawkish stance on interest rates, saying that its primary concern was growing inflationary pressures. However, Trichet acknowledged that there were “downside” risks to Eurozone growth both from financial market turbulence and from a slowdown in the region’s major trading partners. Thus, all eyes turn to this week’s industrial production and Q4 GDP releases, where the ECB will be hoping that their expectation for 2008 growth is borne out and that considerable downside risks to growth do not materialise.

Interest rate outlook