Strong sales and output stall rate cut

Economic data out this week will fuel optimism that the UK is avoiding the fallout from the US slowdown. This will lessen pressure on the Bank of England to follow the US with an interest rate cut.

The FTSE was static in Friday's trading, indicating that the previous day's euphoria over the Federal Reserve's rate cut was short lived.

A series of eagerly awaited Christmas trading statements are expected to indicate buoyant high street demand, while an Engineering Employers' Federation survey, due on Tuesday, shows healthy performance in some manufacturing sectors. Figures tomorrow from the Confederation of British Industry and PricewaterhouseCoopers will paint a similar picture in financial services.
The slew of data will provide ammunition for those in the 'wait and see' camp on the Bank's Monetary Policy Committee, which meets on Wednesday and Thursday.

Selfridges, Dixons, Next, GUS and House of Fraser will give an indication of Christmas trading figures this week. They are set to show healthy sales, particularly in the final week; expectations for growth this month are moderate, after poor weather and transport problems dampened the start of the New Year sales.

Meanwhile, the John Lewis Partnership recorded Christmas week sales that 'far-exceeded expectations', and Whitbread said its performance was 'satisfactory'.

The EEF data will show output for all engineering sectors except vehicle-making rising for the second quarter running in the last three months of 2000.

Higher-value sectors such as electronics, electrical equipment and aerospace showed the strongest performance, leading the EEF to call for rates to stay on hold. However, weak investment figures are provoking longer-term concerns: the employers are hoping for a 50 basis-point cut by the summer.

The CBI/PWC data will show sales and profitability at the 123 financial services firms polled improving over the last quarter, although some slowing is expected in the first quarter of this year.

A poll of 36 City economists put the average likelihood of a cut in interest rates at only 25 per cent. 'No change' was considered the most likely outcome of the MPC meeting, with a 74 per cent probability. Only Barclays Capital ranked a cut more likely than no change. The consensus pointed to a 50 basis-point drop by the end of 2001.