The main focus of attention will be on labour market data to see if recent signs of slowing unemployment continued. If they did, it will be a boost to growth prospects, although the data are also likely to show that earnings growth remains muted, thereby contributing to a still-appreciable squeeze on consumers’ purchasing power.
RICS Housing Market Survey for February
The February housing market survey from the Royal
Institution of Chartered Surveyors (out overnight Monday/Tuesday) will indicate
whether or not the modestly improved housing market at the start of 2012 has
continued. We suspect it has, mainly because housing market activity is being
lifted by first-time buyers rushing to complete before the stamp duty
concession ends later in March. Meanwhile, we expect the RICS survey to reveal
that the balance of surveyors reporting that house prices rose over the
previous three months edged up to -15% in February from -16% in January.
We expect house prices to drift downwards over the coming
months, although we recently trimmed our forecast overall in 2012 to 3% from
5%. Despite the recent, limited pick up, housing market activity is still low
compared to long-term norms, and it is evident that housing market activity is
being lifted by first-time buyers rushing to complete before the stamp duty
concession ends later in March. Meanwhile, although the economy looks like it
is returning to growth in the first quarter, the economic fundamentals still
look far from rosy for the housing market, with unemployment high and likely to
rise further, earnings growth muted, and the outlook uncertain. In addition,
credit conditions may well tighten, making it harder to get a mortgage. In
fact, some mortgage rates are now rising due to lenders’ higher borrowing costs
in wholesale markets, which could weigh down on housing market activity
Trade Deficit in January
The total trade deficit (out on Thursday) is expected to
have widened to GBP2.0 billion in January, after narrowing sharply to GBP1.1
billion in December from GBP2.8 billion in November. Even so, this would be
below the 2011 average monthly deficit of GBP2.3 billion. Within this, the
trade goods deficit is seen widening to GBP7.9 billion in January after dipping
markedly to GBP7.1 billion in December from GBP8.9 billion in November. Again,
this would be below the 2011 average monthly deficit of GBP8.3 billion.
The trade figures for the fourth quarter of 2011 were
encouraging overall, with exports showing decent growth despite the weakness of
domestic demand in key Eurozone markets. Meanwhile, imports were limited by
soft UK domestic demand. Consequently, net trade made a positive contribution
of 0.6 percentage point to UK GDP in the fourth quarter, which limited overall
contraction to 0.2% quarter-on-quarter.
Nevertheless, concern remains that UK exports will be
limited in the near term at least by muted global growth. Of particular concern
to UK exporters is very possible further contraction in the Eurozone in the
first quarter of 2012 following a GDP decline of 0.3% quarter-on-quarter in the
fourth quarter of 2011.
Latest survey evidence on foreign orders is somewhat
mixed. On the positive side, the export orders balance of the CBI industrial
trends survey jumped to a six-month high of -2% in February from -26% in
January and -32% in December. This was well above its long-term average of
-21%. However, the export index of the March purchasing managers’ survey for
the manufacturing sector showed a renewed drop in foreign orders in February
after expansion in January and, especially, December. Purchasing managers
indicated that lower orders from mainland Europe outweighed improved demand
from Asia and the United States in February.
Meanwhile, muted domestic demand is likely to limit UK
imports over the coming months, although import values are likely to be pushed
up by recent higher oil prices.
Unemployment in February
Labour market data on Wednesday are likely to show
further rises in unemployment, although the increases are likely to be limited
compared to late 2011. In particular, the number of jobless on the
International Labour Organization (ILO) measure is seen rising by some 50,000
in the three months to January to stand around 2.685 million. This would match
the 17-year high that was seen in the three months to November and would see
the ILO unemployment rate remain at 8.4%. ILO data are also likely to show that
employment rose by around 33,000 in the three months to January to 29.140
million; however, this is likely to have been inflated by increased part-time
jobs. Employment is down from a peak of 29.279 million in the three months to
May 2011, which was the highest level since the end of 2008.
The claimant count unemployment data have generally been
better than the ILO figures in recent months. Claimant count unemployment is
forecast to have risen by a relatively modest 7,000 in February, which would be
little changed from a rise of 6,900 in January. Nevertheless, this would be the
12th successive increase and take the number of claimant count unemployed up to
a 27-month high of 1.6116 million in February 2012 from a 24-month low of
1.4498 million in February 2011. Claimant count unemployment rose much more
sharply earlier in 2011 because of changes made to the benefits system, as well
as due to muted economic activity. The claimant count unemployment rate is
expected to have edged up to 5.1% in February, having stood at 5.0% since last
September. This is up from a low of 4.5% in the five months through to March
2011.
While there have been some encouraging signs in the
latest labour market data that the low point has been passed, we suspect that
unemployment is still headed significantly higher overall through the coming
months, as economic activity remains limited overall, business confidence is
fragile, and public sector jobs are pared. While economic activity has clearly
picked up in the first quarter of 2012 after GDP contracted 0.2%
quarter-on-quarter in the fourth quarter of 2011, we suspect it will remain
relatively soft overall and prone to relapses for some time to come. As a
result, business confidence is likely to remain soft and fragile, which will limit
employment in the private sector while substantial job cuts occur in the public
sector as part of the government’s public spending cuts.
Furthermore, current high oil prices are increasing the
pressure on companies to limit their total costs by containing their wage
costs, be it through holding down pay or keeping their labour forces as tight
as possible.
Consequently, we expect the number of jobless on the
International Labour Organization measure to reach a peak around 2.90 million
in late 2012/early 2013, which would see the unemployment rate reach 9.0%.
Average Earnings in January
Underlying average earnings growth (out Wednesday) is
expected to have remained muted in January and substantially below past norms.
This is the consequence of relatively high and rising unemployment, workers'
job insecurity, and a pressing need for many companies to limit their costs in
a very challenging environment. The recent rise in oil prices is a further
reason for companies to try and limit their overall costs by containing their
wage costs.
Specifically, underlying average weekly earnings growth
(regular pay – excluding bonus payments) is seen remaining at 2.0% in the three
months to January, which is only marginally up from the 2011 low of 1.7% seen
in September. Annual average weekly earnings (total pay) growth is expected to
have fallen back to 1.8% in the three months to January from 2.0% in the three
months to December due to lower bonus payments compared to a year earlier.
These earnings growth rates are substantially below the
4.5% level that is generally considered consistent with the Bank of England's
2.0% consumer price inflation target. They are also still well below current
inflation levels, so consumers’ purchasing power is still being substantially squeezed
even though consumer price inflation is now retreating (it was down to 3.6% in
January from a three-year high of 5.2% in September 2011).
13 Mar - RICS House Price Balance, February: -15
13 Mar - Non-EU Visible Trade Balance, January
(GBP/Month): -4.4
13 Mar - Visible Trade Balance, January (GBP/Month): -7.9
13 Mar - Total Trade Balance, January (GBP/Month): -2.0
14 Mar - Claimant Count Unemployment Rate, February (%):
5.1%
14 Mar - Claimant Count Unemployment Change, February
(000s): +7
14 Mar - International Labour Organization Unemployment
Rate, January (%): 8.4%
14 Mar - Average Weekly Earnings - total pay, January
(3-Month/Year): +2.0%
14 Mar - Average Weekly Earnings - regular pay excluding
bonus, January (3-Month/Year): +1.8%