The Week Ahead: Into the mind of the Bank... and it's raining on Monsoon

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The Independent Online

Mervyn King, the Governor of the Bank of England, is likely - once again - to dominate the business pages this week. In the wake of the revelation that UK inflation had reached 3 per cent, a full point above the Bank's target of 2 per cent, Mr King's speech on Tuesday at the Birmingham Chamber of Commerce will be eagerly awaited.

The Bank won't comment on the content of his speech, but observers have little doubt that inflation will figure highly.

Still reverberating round the City is the shock decision by the Bank's Monetary Policy Committee earlier this month to increase interest rates by a quarter point to 5.25 per cent. The minutes from that meeting, published on Tuesday, should throw some light on the MPC's thinking.

"What we don't know is the extent of the committee's concerns about inflation, and the minutes should go some way to clarifying that," said Philip Shaw, economist at Investec.

Some analysts are betting that, despite the recent rise, the minutes will reveal an overriding concern about inflation and could foreshadow yet another hike next month.

The Office for National Statistics could push that decision along when it reveals quarterly data for GDP growth on Wednesday. Mr Shaw expects it to report growth of 0.8 per cent, which would be a tick higher than the previous quarter. "Even though it tightened policy a week ago, a stronger growth number at the end of the year would keep the committee focused on upside inflation risks and keep the pressure on to raise rates again."

Given what may be early signs of a housing market slowdown, one more increase could be the top of the rate cycle, he added.

Another area sure to catch the public's interest will be the supermarkets. On Tuesday, the Competition Commission will publish its initial findings on the industry, examining whether the grocers act against the public good and revealing any action it might be prepared to take.

Northern Rock is expected to reflect the increasingly difficult housing market when it presents its annual numbers on Wednesday. Stephen Andrews, an analyst at UBS, forecasts generally solid results from the mortgage bank but weakening margins as last year's rate rises and increased competition bite. He predicts annual pre-tax profits of £357m, up from £308m the year before. "The company's look into next year will be very important. We will want some clear guidance," said Mr Andrews.

The results will be the last from Northern Rock's long-standing finance director Robert Bennett, a well-respected figure in the City, who is retiring.

Monsoon, the women's clothing retailer, is expected to be less impressive when it provides interim results on Monday. "It is going to have a tricky first half, but equally it's not going to be a disaster," said Richard Ratner, retail analyst at Seymour Pierce. "We are reasonably relaxed about the numbers. There will probably be a small change on the downside."

The company announced in September that same-store sales had dropped amid "extremely difficult" market conditions. Mr Ratner is confident, though, that the problems don't go too deep. "At the end of the day it's a strong brand. This won't be a collapse."

The other issue hanging over the company is the need for new faces in the boardroom. Chief executive Rose Foster and finance head Mark McMenemy announced last year they would be stepping down, but no replacements have yet been named.

IG, the spread-betting firm, also reveals interim results on Monday. Analysts expect few surprises after a December trading update in which IG said turnover had grown strongly in all business units.

The commodities market, which has been on a tear in recent years, is likely to get another fillip this week when BHP Billiton, the world's biggest miner, gives its trading update on Thursday. Analysts at Barclays expect the company to give improved copper, iron and steel production data, and strong numbers for its oil business.

Analysts will also scrutinise the company's view of what it envisages for 2007 in terms of demand from China as well as the strength of commodity prices. Fellow miner Lonmin will update the market on Friday.

CALENDAR

Tomorrow 22

UK RESULTS: (final) Aukett Fitzroy Robinson; (interim) IG, Monsoon, Zetar

Tuesday 23

UK RESULTS: (F) Domino Printing, Humberts, London Scottish; (I) NCC

Wednesday 24

UK RESULTS: (F) Northern Rock

Thursday 25

UK RESULTS: (F) Jelf

Friday 26

UK RESULTS: No companies reporting

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