Looking for clues to next interest rate cut

ECONOMIC news will take centre stage this week as analysts look to a number of official releases for clues about the timing of future interest rate cuts.

ECONOMIC news will take centre stage this week as analysts look to a number of official releases for clues about the timing of future interest rate cuts.

After the Bank of England’s rate cut earlier this month, markets will be hoping for a clearer picture on prospects for borrowing costs from a raft of economic data due before the festive break.

The bank’s battle to keep a lid on prices will be in the spotlight on Tuesday with inflation figures for November.

The official Consumer Prices Index (CPI) benchmark rose above the Bank’s 2% target for the first time in four months in October – reaching 2.1% – and pressure from soaring oil and food costs is expected to have persisted last month.

Petrol prices hit an average £1 a litre in November as oil prices peaked near 100 US dollars a barrel, and Investec economist David Page predicts the spike will edge CPI up to 2.2% over the month.

He said: “Two concerns lurk for next year. Will higher oil prices persist and drive utility bills higher in 2008? And a Bank of England survey saw inflation expectations at a high of 3% in November.”

Although the City is expecting at least two more rate cuts from the bank next year to stimulate a slowing economy, it will be pouring over the minutes of the December rate meeting on Wednesday to gain hints on the timing of the next policy easing from the strength of the vote to cut rates.

Global Insight’s chief UK economist Howard Archer said: “Obviously, a unanimous vote in favour of December’s cut would be seen as significantly boosting the chances that the bank will act again as soon as the first quarter of 2008.

“However, a tight 5-4 vote could be a sign that the bank will need to see clear evidence that slowing growth is diluting inflationary pressures before acting again.”

Consumer spending patterns will also be a key factor in the bank’s decision with clouds gathering over the high street and slew of recent profit warnings from the retail sector.

Retail sales volumes fell 0.1% in October – the first decline for nine months despite discounting from retailers – although Mr Archer predicts November sales will edge 0.2% higher month-on-month in figures due on Friday.

He added: “Consumer confidence fell to its lowest level since March 2003 in November, and latest anecdotal evidence has hinted that sales are relatively muted so far in the critical Christmas period.”

Bus and rail group National Express is tomorrow expected to give a healthy verdict on trading and set out its stall for further growth next year.

In a brief snapshot last month, the London-based firm said its current performance was in line with expectations – led by a particularly strong revenue performance from its rail division, which started running the prestigious East Coast Main Line franchise last week.

The win stemmed disappointment at the loss of its East Midlands deal earlier this year for National Express, now headed by former Strategic Rail Authority boss Richard Bowker. But the company is also the UK’s biggest coach operator and has impressed analysts with its growth potential of the business in Spain and North America.

Credit Suisse analyst Gerald Khoo expects a 9% increase in full-year profits to £170.5 million. He said: “National Express has encouraging fundamentals and clear organic growth opportunities in Spain and North America that can be supplemented by acquisitions.”

The company bolstered its Spanish presence by buying Continental Autos in October, adding the commuter bus firm to its existing Alsa business. The deal brings National Express’s operations in the country to more than 2,100 vehicles carrying 142 million passengers per year.

In the UK, the company has added acquisitions on a smaller scale, with November’s deal for Kent-based coach firm Kings Ferry Travel, which provides commuter coach travel with a fleet of 75 vehicles. The company also unveiled a new logo, while retaining its traditional red and blue livery.

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