The British Retail Consortium (BRC) retail sales monitor for March (to be released overnight on Monday/Tuesday) is expected to show that retail sales growth was decent, but nevertheless moderated after rebounding in February from January's weather-related slump.

The consensus is for the BRC to report that total retail sales rose 4.0% year-on-year (y/y) in March, while sales are expected to have increased 2.0% on a like-for-like basis (which strips out the effect of additional floor space). The BRC's February monitor showed that total sales growth picked up to 4.5% y/y from just 1.2% in January, while like-for-like sales rose 2.2% after falling 0.7% y/y in January.

The Confederation of British Industry has already released its distributive trades survey for March. This release showed that the balance of retailers reporting a y/y increase in sales retreated to 13% in March after jumping to a 33-month high of 23% in February; the February figure was a surge from -8% in January. In fact, March's balance was back in line with the 13% level seen in both December and November.

The underlying impression we get is that consumer spending has firmed modestly overall in recent months, but the upside is still limited. We expect this to remain the case for some time to come as households still face very challenging conditions, notably including high unemployment and still-falling employment, low earnings growth, elevated debt levels, and January's value-added tax hike. Meanwhile, significant uncertainties persist about the economic outlook and jobs, which are likely to maintain many consumers' desire to improve their personal finances.

Consumers will also be wary that further out, they are very likely to face higher taxes as part of the further major corrective action that will be needed to rein in government finances. Nevertheless, the Bank of England seems unlikely to raise interest rates anytime soon, so low mortgage rates should continue to support consumers' purchasing power.

RICS Housing Market Survey for March

The March housing market survey from the Royal Institute of Chartered Surveyors (also being released overnight Monday/Tuesday) will provide important evidence as to whether or not housing market activity is picking up significantly after faltering appreciably at the start of the year.

The February RICS survey reported that buyer interest improved to a limited extent in February after nosediving in January amid the arctic weather conditions. It is also evident that housing market activity suffered early in 2010 from some purchases being brought forward to beat the price threshold for stamp duty on house purchases moving back down from £175,000 to £125,000 at the start of January.

Interestingly, the February RICS survey indicated that the number of properties coming to the market picked up more than buyer enquiries. This news is potentially very significant because a shortage of properties has been a key factor supporting house prices in their recovery from their early 2009 lows. If the number of properties coming to the market again rose more than buyer interest in March, it would heighten suspicion that a key recent support for house prices is waning.

We expect the RICS survey to reveal that the balance of surveyors reporting that house prices increased over the previous three months recovered modestly to 20% in March after slumping to a five-month low of 17% in February from 31% in January and a high of 35% in November.

We suspect that house prices will be erratic through 2010, and may very well be no better than flat over the year—particularly if more properties come to the market, thereby pushing the supply/demand balance more towards buyers from sellers. We believe that the overall appreciable house-price rises that have been seen since early 2009 have been out of kilter with the overall economic fundamentals. This is even allowing for the support to the housing market coming from low mortgage interest rates, as well as more affordable prices resulting from the substantial fall in house prices from their October 2007 peak through to their early 2009 trough. Although the Bank of England may well refrain from raising interest rates until 2011, the overall economic environment (notably high unemployment and low earnings growth) is still far from supportive for house prices, while credit conditions remain rather tight. In addition, house price/earnings ratios have moved back up in recent months. Nevertheless, some support for the housing sector will come from the government introducing in the March budget a stamp-duty holiday for the next two years for first-time buyers on all properties costing up to £250,000.

Trade Deficit in February

The total trade deficit (for which information is available Tuesday) is expected to have narrowed to £3.0 billion in February, after spiking up to a 17-month high of £3.8 billion in January from £2.6 billion in December. Nevertheless, this would still be above the average monthly deficit of £2.8 billion in 2009. The visible trade deficit is forecast to have narrowed to £7 billion in February, having jumped to £8 billion in January from £7 billion in December. Again, this would still be above the average monthly deficit of £6.8 billion in 2009.

The substantial jump in the trade deficit in January was unexpected and could have been partly due to the arctic weather making it hard to release exports. It is also evident that the trade deficit has been lifted in recent months by substantially increased car imports resulting from demand being pushed up by the government's car scrappage scheme.

It is hoped that the trade deficit will narrow during the course of 2010 as exports benefit increasingly from the combination of sterling weakness and improved domestic demand in key overseas markets. There are welcome signs that Eurozone growth is picking up modestly after faltering around the turn of the year, and U.K. exporters will be fervently hoping that this continues. Obviously, modestly improving U.K. domestic demand is likely to lift imports to some extent as well.