The Week Ahead: High noon for second-guessers as MPC weighs raising the rates

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The Independent Online

After all the hype and debate, this week will prove just how well the City can read the Bank of England. The central bank's interest-rate-setting panel, the Monetary Policy Committee, meets on Wednesday and, by midday on Thursday, is expected to unveil a rise in the cost of borrowing.

A few weeks ago no one disagreed with this forecast. However, a run of soft economic data, contrary to previous updates showing a booming economic recovery and red-hot housing market, has introduced an element of doubt. "While we still believe that the MPC will lift borrowing costs by a further quarter point," comments Philip Shaw, an economist at investment bank Investec, "we are less confident than we were."

The impact of this potential rise, to 4.25 per cent, is unlikely to dent the nation's spending habits significantly. Rates are expected to keep moving up over the coming months, and the general consensus is that the consumer will not react until they reach 5 per cent. This week's decision will be a further indication of when we are likely to hit this point.

Two other central banks are also meeting to discuss rates - the Federal Reserve in the US and the European Central Bank - but the results are unlikely to be as influential, with both predicted to hold at 1 per cent and 2 per cent respectively. However, a more buoyant tone is expected to be adopted by the Fed as the US recovery strengthens.

The economic newsflow, which in the UK also includes updates on manufacturing and household lending, will be the centre of attention beyond the central banks because, in a short week due to tomorrow's bank holiday, corporate results are thin on the ground.

That is not to say traders will be left twiddling their thumbs. David Thomas, chief executive of restaurant and hotels group Whitbread, presents his final set of results to the City before retiring next month.

The focus will therefore be on the first airing of his replacement, Alan Parker. For that reason, the City is not expecting any great surprises at the full-year figures, and Mr Parker is likely to stick to Whitbread's existing strategy. Questions will be asked about the thinking behind pursuing Premier Lodge, the rival motel chain to its own Travel Inn, but are unlikely to be answered. Pre-tax profits are likely to be up around 10 per cent at £245m.

Other companies to look out for are medical devices specialist Smith & Nephew - where analysts are hoping for a strong performance, helped in particular by underlying growth of 17 per cent in the orthopaedics division - and easyJet. The budget carrier has already indicated that yields are likely to be flat in the first half, leaving the City, which has been selling out of the stock in recent weeks, keen to hear management's prediction for the core summer months.

There will also be first-quarter new business figures from insurer Aviva, a quarterly traffic update from ports and ferries business P&O and April traffic data from British Airways.

On the Continent, first-quarter net income at UBS, Europe's largest bank, is expected to be around 2bn Swiss francs (£871m). That is a significant improvement on the previous year and further evidence of the global economic turnaround and subsequent increase in trading and merger and acquisition activity.

From Switzerland to Germany: luxury car marker BMW is expected to show an increase in profits and an upbeat tone when it posts first-quarter numbers on Wednesday.

Analysts are predicting pre-tax profits to rise around 4 per cent year-on-year to €860m (£580m) on 3 per cent volume growth - a particularly solid performance as there have been significant launch costs in the quarter. Comments broker Lehman Brothers in a recent note: "While results are unlikely to surprise on the upside, we think that management's commentary regarding the volume [and] earnings outlook from Q2 should be distinctly positive."

Other European groups reporting include French bank BNP Paribas, sportswear specialist Adidas-Salomon and Dutch carrier KLM.

Norway's Statoil kicks off a series of updates from the European oil companies following results from the US and British majors.

Alcohol will also be well represented. Danish brewing giant Carlsberg will be posting first-quarter numbers while Pernod Ricard will be updating on sales for the same three-month period. Most analysts are predicting another strong quarter from the French spirits giant, the owner of Jacob's Creek wines and Havana Club rum.

CALENDAR

Tomorrow 3

UK: Results: Bank holiday.

Tuesday 4

UK: Results: (final) Thus Group, TTP Communications.

Wednesday 5

UK: Results: (F) Big Yellow Group, Braemar Seascope Group, Incepta, Matalan, Whitbread; (interim) easyJet, Fenner, Innovation Group, Phytopharm; (first quarter) Bookham Technology.

Thursday 6

UK: Results: (F) Blacks Leisure Group, Jennings Brothers, Shiloh; (Q1) International Power, Smith & Nephew.

Friday 7

UK: Results: None sceduled.

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