Producer output prices (out Monday) are seen moving further up, as manufacturers looked to pass on their sharply higher input costs resulting from elevated oil, commodity and food prices, as well as a softer pound. Headline annual producer output inflation is expected to have risen to 6.4% in April, which would be its highest level since February 1991. Annual core output price inflation is seen rising to 3.2% in April, from 3.0% in March. Latest survey data from the manufacturing purchasing managers and the Confederation of British Industry (CBI) show that companies are currently very keen to raise their prices to boost their margins.

Consumer price inflation (out Tuesday) is forecast to have moved further above the Bank of England's target level of 2.0% in April. We expect consumer price inflation to have climbed to a 12-month high of 2.7% from 2.5% in March, pushed up by rising utility bills and elevated food prices, as well as unfavourable base effects (inflation retreated significantly in April 2007). It seems highly likely that consumer price inflation will reach at least 3.0% in the summer, before starting to fall back as softer growth dilutes underlying inflationary pressures. Core consumer price inflation is forecast to edge up to a still muted 1.3% in April from an 18-month low of 1.2% in February and March. Meanwhile, underlying retail price inflation is forecast to have edged up from 3.5% to 3.6% in April, while headline retail price inflation is seen stable at 3.8%. Lower housing cost components are expected to have had some dampening impact on retail price inflation in April.

The British Retail Consortium's retail sales monitor for April (out Tuesday) is expected to indicate that consumer spending is now being increasingly hit by the major headwinds that have seen confidence fall to a fifteen-and-a-half year low. These headwinds include muted real disposable income growth, markedly tighter lending conditions, a substantially softer housing market, lower equity prices, and increased debt levels. Meanwhile, household purchasing power is being dented by higher utility bills and elevated food prices, while many home owners are re-fixing their mortgages at significantly higher rates. Furthermore, elevated concerns about the economic outlook are likely to cause consumers to tighten their belts. Finally, we suspect that unemployment will start to rise later in 2008. Likely further gradual Bank of England interest rate reductions will help the consumer, but will only partially offset these major headwinds.

The April distributive trades survey from the CBI was markedly weaker even allowing for sales being depressed in April by poor weather and this year's early Easter. Indeed, the CBI showed that the balance of retailers reporting that sales were up year-on-year plunged to a 29-month low of -26% in April from +1% in March. Furthermore, it was substantially below the long-term average of +18%. The latest BRC monitor showed that total retail sales growth slowed sharply to 1.1% year-on-year (y/y) in March from 3.9% y/y in February. On a like-for-like basis (which strips out the effect of additional floor space), retail sales fell 1.6% y/y in March, in marked contrast to a 1.5% y/y gain in February. This was the first y/y decline for two years.

The Bank of England will be particularly hoping that average earnings growth (out Wednesday) remained muted in March, given its concern that elevated - and rising - inflation expectations, coupled with a currently still tightening labor market, could yet lead to pay moving up appreciably. The early 2008 average earnings data are of particular interest to the Bank of England, as they reflect the first of the 2008 pay settlements. Latest survey evidence generally indicates that pay moderation has continued so far in 2008. We expect underlying average earnings growth (excluding bonus payments) to have been limited to 3.8% in the three months to March. Headline average earnings growth is seen modestly lower at 3.7% in the three months to March, reflecting lower bonus payments. These levels would both be unchanged from the levels from the three months to February, and well below the 4.5% level that the Bank of England considers broadly consistent with its 2.0% inflation target.

Meanwhile, claimant-count unemployment is expected to have been flat in April, as slowing growth and weaker business confidence increasingly impact. The unemployment rate is seen stable at 2.5% on the claimant count measure in April and at 5.2% on the International Labour Organization measure in March. Unemployment is a lagging indicator and we suspect that slowing growth will take an increasing toll on the labor market as 2008 progresses. Significantly, latest labor hiring surveys are clearly softer overall. 

Ongoing evidence that the housing market is buckling markedly under the double whammy of affordability constraints and tighter lending practices is expected to come on Tuesday from the Department for Communities and Local Government (for March) and from the Royal Institute of Chartered Surveyors (for April). We expect the Royal Institute of Chartered Surveyors (RICS) survey to indicate that the balance of surveyors reporting that house prices rose over the previous three months retreated further to a survey low of -83% in April. The balance stood at -78.5% in March, which was down from -64.1% in February. March not only marked the eighth successive negative balance, but it was also the deepest since the survey began in January 1978. The RICS survey will also be scanned to see if buyer enquiries are showing any signs of stabilizing after recent extended, marked declines. New buyer enquiries fell for a 16^th successive month in March, and at the fastest rate for five years.

Finally, the trade deficit (out Monday) is expected to have been essentially stable in March. While U.K. exporters should increasingly benefit from the recent marked overall decline in the pound, this may not be sufficient to offset weaker demand in foreign markets. At least though, net trade is likely to benefit from U.K. imports being limited by significantly softer domestic demand over the coming months. Meanwhile, the Bank of England is likely to be concerned by further evidence that import prices are being pushed up by elevated oil, commodity and food prices, as well as the weaker pound.

By Howard Archer

12 May - Visible Trade Balance, March  (GBP/Mn): -7.5
12 May - Non-EU Visible Trade Balance, March (GBP/Mn): -4.2
12 May - Total Trade Balance, March  (GBP/Mn): -4.4
12 May - Producer Price Output Inflation, April NSA (Month-on-Month): +0.6%
12 May - Producer Price Output Inflation, April NSA (Year-on-Year): +6.4%
12 May - Core Producer Price Output Inflation (ex Food, Tobacco etc.) April SA (Month-on-Month): +0.3%
12 May - Core Producer Price Output Inflation (ex Food, Tobacco etc.) April NSA (Year-on-Year): +3.2%

13 May - British Retail Consortium Monitor Total Sales, April (Year-on-Year): not forecast
13 May - British Retail Consortium Monitor Like-for-Like Sales, April (Year-on-Year): not forecast
13 May - DCLG House Prices, March(Year-on-Year): not forecast

13 May - RICS House Price Balance, April: -83% 

13 May - Consumer Price Inflation, April (Month-on-Month): +0.6%
13 May - Consumer Price Inflation, April (Year-on-Year): +2.7%
13 May - Core Consumer Price Inflation (ex Food, Drink, Tobacco), April (Year-on-Year): +1.3%
13 May - Retail Price Inflation, April (Month-on-Month): +0.5%
13 May - Retail Price Inflation, April (Year-on-Year): +3.8%
13 May  - Underlying Retail Price Inflation, April (Month-on-Month): +0.5%
13 May  - Underlying Retail Price Inflation, April (Year-on-Year): +3.6%

14 May  - Claimant Count Unemployment Rate, April (%): 2.5%
14 May  - Claimant Count Unemployment Change, April ('000s): 0

14 May  - International Labour Organization Unemployment Rate, March (%): 5.2%
14 May  - Average Earnings including bonus, March (3-Month/Year): +3.7%
14 May  - Average Earnings excluding bonus, March (3-Month/Year): +3.8%