Hopes that the Bank of England will cut interest rates again before the year-end are likely to find support this week with the publication of minutes from the last two meetings of its Monetary Policy Committee and the release of key unemployment and retail sales data.
The minutes, to be published on Wednesday, cover both the emergency rate cut made on 18 Septemberand the second 25-basis point cut made earlier this month. At 4.5 per cent, base rates are at a 37-year low.
The minutes from the first meeting should provide clues as to why the committee chose not to follow the US Federal Reserve Board and European Central Bank, which both cut rates by 50-basis points after the attacks. The records of the more recent meeting should reveal the committee's view on how to balance the pressure between falling international confidence and the continuing domestic consumer spending boom.
Philip Shaw, an economist at Investec Henderson Crosthwaite, said: "We would guess that the relative strength of domestic demand was a key issue [at the first meeting], but of course the committee supplied the remaining 25 basis points two weeks later."
The MPC will scrutinise this week's unemployment and retail sales figures for clues as to the resilience of consumer spending. Wednesday's unemployment data is expected to show another fall in the number of people out of work, although economists warn that it is only a matter of time before the deteriorating global economy forces a rise in job losses. "Once the labour market turns, it can turn pretty quickly," said John Butler, UK economist at HSBC.
September's retail sales figures, to be released on Thursday, are harder to predict, although HSBC expects the month-on-month rate of increase to slow from 0.5 per cent in August to 0.4 per cent.
The MPC's freedom to provide a further rate cut is likely to be enhanced by Tuesday's retail price index figures, which are expected to show underlying inflation falling to 2.3 per cent in September, from 2.6 per cent the previous month.
Fresh evidence that inflation is in check was released this morning from the CBI (the employers' organisation) whose survey revealed that wage settlements in service firms averaged 3.7 per cent in the three months to September, slowing from 4.1 per cent in the previous three months. Manufacturing pay awards accelerated slightly, at 2.9 per cent, compared with 2.7 per cent in the prior period.