This week in the markets - get set for a run of important data releases

If you like your pancakes (it’s Shrove Tuesday tomorrow) or your romantic dinner-a-deux (it’s Valentine’s Day the day after) with a side order of economic data, you’re in luck. Here in the UK, it’s a busy week, with a fourth quarter gross domestic product (GDP) estimate, plus Consumer Prices Index (CPI), inflation figures and retail sales numbers. There is also the latest employment and wages data to chew over.

The steady diet of data continues at pace in the US too. From here we are due to get CPI and Producer Price Index, as well as inflation rate updates. There is also retail sales data due out from the States along with industrial production figures. While from both Japan and the EU we can expect their first estimates of GDP movement for the fourth quarter.

We have already had the gloomy news that UK employers expect pay rises to fall this year. It’s the first time the forecast level of pay rises has fallen since early 2020.

According to a closely watched survey of 2,006 UK employers in January by the Chartered Institute of Personnel and Development, the forecast rate of pay rises in the private sector fell from 5% to 4% in the most recent quarter. Its forecast for pay rises in the public sector fell further, from 5% to 3%.

An eye on interest rates

A focus on interest rates remains a global pursuit. And investors will be looking for any clues they can in speeches by Bank of England governor Andrew Bailey, European Central Bank chief economist Philip Lane, and US Federal Reserve board member Michelle Bowman this week.

Aside from that, data releases are likely to be pored over by investors trying to figure out how quickly the Bank of England is likely to lower interest rates this year. One such piece of data is the latest Consumer Price Index reading.

Many predicted that the December headline inflation figure would fall ever-so-slightly. That wasn't the case. Instead, it rose ever-so-slightly from 3.9% to 4%. Wednesday’s data is expected to show a further increase, with economists polled by Reuters forecasting a 4.2% rise in consumer prices in the year to January. This could be partly down to the raising of Ofgem’s cap on energy prices, but any sign that broader inflationary pressures are persisting — particularly in the services sector — could further undermine market expectations of a series of interest rate cuts this year.

The Bank of England itself has already anticipated that price growth would accelerate in January before falling below 2% in spring. Markets are pricing the first quarter-point reduction in June or August, followed by two more later in the year, taking the benchmark rate down to 4.5%.

Meanwhile, US inflation is expected to have slowed last month, resuming a downtrend that could encourage the Federal Reserve to lower interest rates in the spring. Economists polled by Reuters are forecasting an annual consumer price rise of 3% in January, down from December’s figure of 3.3%, when official data are published on Tuesday.

Core inflation, which strips out the volatile food and energy sectors, is expected to be 3.8%, down from 3.9% a month earlier. Fed chair Jay Powell has already said he is looking for more progress on inflation before considering rate cuts. And that may not be enough to persuade him to make any cuts any time soon. December’s CPI figures showed inflation was accelerating, so a moderation in January would be welcome news for the Fed. And its watchers.

Eurozone slowdown

In Europe, industrial production data is expected to show a drop in the eurozone’s factory output for the fourth month in a row.

The latest figures, published by Eurostat on Wednesday, are, according to economists’ forecasts in a Reuters poll, expected to show a drop of 0.4% from November. That would mean eurozone factory output fell more than 4% from a year earlier. And that would just underline how high energy costs and weak global demand are contributing to the overall stagnation of the region’s economy.

However, the picture is not uniform across the board. Weakness in Germany is actually being masked by the bloc’s data. Here factory output fell 1.6% in December. There was also a monthly decline of 0.3 per cent in Spain. The overall figure is being propped up to a large extent by other major eurozone economies which reported increasing factory output in December. For instance, both France and Italy saw a rise of 1.1% on the previous month.

That doesn’t mean the outlook is better than it looks at first glance though either. Monetary tightening and slowing demand as well as inventory destocking is taking its toll and predictions are that eurozone industrial output will fall a further 0.5% this year before returning to growth in 2025.

Companies in the news

And finally, on the companies’ side we will hear from the UK’s utilities companies, with Severn Trent and United Utilities reporting on Wednesday and Centrica on Thursday. We also get updates from the European banks and US consumer goods manufacturers.

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