The consumer is the weak link in the European economic upturn story. We’re past the worst, but it’s hard to see a marked improvement in spending coming.

Pretty healthy retail sales growth in November reinforces belief that consumer spending is picking up to some extent, and reduces the case for a near-term interest rate cut.

The earnings data may encourage the Bank of England to hold off from cutting interest rates in the immediate future as March while it seeks sustained clear evidence that the pay settlements for 2006 are...

The strength of the public finances in January effectively guarantees that Brown will be able to avoid making any major tax hikes or significant spending cutbacks in March’s budget.

We believe the door is opening for an interest rate cut early in 2006 if the economy fails to show sustained significant signs of improvement over the next couple of months.

Going forward, UK exporters will be fervently hoping that recent signs of improving growth in Western Europe will be sustained and will increasingly feed through to boost exports.

Mr Brown will clearly look to take advantage of the budget to further his credentials to take over as prime minister from Mr Blair.

The combination of rising unemployment, falling employment and muted earnings growth is hardly supportive for consumer spending or, for that matter, extended sharp house price increases.

This is likely to reinforce the central bank’s concern that any further trimming of interest rates could excessively stimulate the housing market and risk send housing prices markedly higher.

The sector may see modest expansion in the first quarter of 2006, having been a major drag on overall growth in the fourth quarter.

While we believe that it is premature to rule out another 25-basis-point cut before the end of this year, we acknowledge that the odds are increasing that it will be delayed until early 2006.

With one member of the MPC voting for an interest rate cut in December and Bank of England chief economist, Charlie Bean, recently making some dovish comments, the odds of an interest rate cut early...

There is undeniably a growing risk that house prices could move markedly higher over the coming months. Indeed, this risk is clearly showing more prominently on the Bank of England’s radar.

It appears that significant discounting is still needed to boost sales volumes.

This subdued growth is expected to help to contain underlying inflationary pressures and risks, underpinning our belief that interest rates will be cut by a further 25 basis points in February or March.

Flat export orders in February are particularly disappointing.

We still believe UK interest rates will eventually be trimmed by a further 25 basis points, although not until August at the earliest.

No change was no surprise, given recent overall evidence of modestly stronger economic activity and a more robust housing market.

The markedly reduced mortgage equity withdrawal since its fourth-quarter 2003 peak has undoubtedly weighed down significantly on consumer spending since mid-2004.

We believe that interest rates will eventually come down by a further 25 basis points to 4.25%.

There is a very real risk that consumer spending will be muted for an extended period without any other areas of the economy compensating significantly.

Euro region labor markets are finally beginning to see genuine, if somewhat limited, improvement, boosted by the pickup in growth since mid-2005. Rising employment is key to boosting consumer spending across the euro region.

The Bank of England currently seems unlikely to act before August given that growth in the first quarter appears to have been around trend, while survey evidence indicates that inflationary expectations have risen recently.

Activity is benefiting from August’s interest rate cut, increasing confidence in the housing market and still rising employment. This is likely to put a floor under house prices.

The data were firmer overall than expected,

Future growth still depends critically on developments in consumer spending, and we suspect that this will be relatively muted over the coming months.

The limited correction in the Halifax house price index in January following the marked rises during the latter months of 2005 reinforces our strong doubts that house prices will see sustained sharp rises over the...

It appears that strong competitive pressures on the high street and through the supply chain are continuing to contain any second round inflationary effects of high oil and energy prices.

The underlying picture that seems to be emerging is that consumer spending will be reasonably healthy over the Christmas period. If borne out by hard data, this dilutes the case for an interest rate cut...

If house prices start to accelerate markedly, we believe buyer interest will diminish, thereby keeping a lid on prices.

What happens after the October meeting is far from clear.

We suspect economic activity over much of 2006 will be held back by sluggish consumer spending and that the Bank of England’s growth forecast will prove to be too optimistic.

December survey evidence showing robust service sector activity, stronger retail sales and firmer house prices has temporarily at least alleviated some concern over the economy’s softness and eased pressure on the MPC for an imminent...

Overall, the mortgage approvals and lending data indicate that the more robust housing market activity evident in the second half of 2005 has continued into 2006.

The fall in headline annual producer output price inflation in March was primarily due to base effects reflecting the particularly sharp rise in producer prices a year ago as oil prices surged.

We believe house price increases will be relatively muted over the coming months, given affordability constraints, increased debt levels and muted earnings growth.

The MPC still has to see conclusive sustained evidence that 2006 pay settlements are remaining contained.

This is likely to put a floor under house prices, but we remain highly doubtful that house prices will move substantially higher on a sustained basis any time soon. If house prices start to accelerate...

The Bank of England will be pleased to see that producer output prices remained largely contained in December, but less good news is the further sharp increase in input prices as gas prices soared.

In economic terms at least, Wednesday’s budget seems set to be a very low key affair.

While the February mortgage lending and approval data are relatively healthy, there are hints that housing market activity could be starting to lose momentum after several months of improvement.

The climb in annual house price inflation to 2.5 per cent in November from a nine-year low of 1.8 per cent in October reported by the ODPM adds to the recent evidence that house prices...

Nevertheless, limited core inflation in January will not deter the ECB from hiking interest rates by a further 25 basis points on Thursday.

Below the headline data there are some positive features that should not be overlooked.

With consumer price inflation below the 2% target level in both December and January and clearly below the levels forecast by the Bank of England in their November quarterly inflation report, a near-term interest rate...