Five things to look out for in the economy this week

The main thing that people will be looking for in the UK will be whether there is a real possibility that inflation will force the Bank of England’s hand, making it increase rates this year

UK consumer inflation figures will be released on Tuesday, but will it lead the Bank of England (Governor Mark Carney, pictured) to raising interest rates this year? (Getty)

This will be the week when it becomes clear that interest rates in the UK will rise sooner than expected, and in the US faster than expected. We may also catch a glimpse of the end of ultra-easy money in Europe too. It is a big data week and it links together like this.

On Tuesday, Valentine's Day, we get UK consumer inflation figures, which may show that inflation is above 2 per cent. Then on Wednesday we get the US inflation figures, while the Federal Reserve chair Janet Yellen is giving her twice-yearly evidence to Congress on the state of the economy, called the Humphrey-Hawkins testimony, on Tuesday and Wednesday.

The main thing that people will be looking for in the UK will be whether there is a real possibility that inflation will force the Bank of England’s hand, making it increase rates this year. If the labour market statistics on UK unemployment and employment – out on Wednesday – are reasonably strong, I think it will become odds-on for our first rate rise to come by autumn at the latest.

The Monetary Policy Committee will get cover for such a rise if the US pushes rates up again next month. Indications as to whether it might be will be the key thing people are looking for from Janet Yellen. It will be interesting too to see how she is received by the new Congress. She is of course independent, but last year she was attacked by some Republican politicians. Will they be emboldened by the fact that they control both houses of Congress and – if control is the right word – the presidency? Or will they go out of their way to respect the independence of the Fed?

The big point here is that the US economy is close to full capacity. There have been a series of strong earnings figures from large American corporations in the past couple of weeks, which on Friday pushed all three major US share indices to all-time highs. If this is not the time to keep pushing rates up, when is?

Finally, Europe. Here the division between the needs of Germany on the one hand and the Club Med, notably Italy and Greece, on the other has made life difficult for the European Central Bank. We’ll get inflation figures for Germany on Tuesday, as well as fourth-quarter GDP numbers for the eurozone, including a break-out for Germany, Italy and Greece. So we will see just how bad the economic divergence has become in Europe. The general view is that in an ideal world Germany needs higher interest rates, while most of the rest of Europe needs rates to stay low for years to come. The problem, of course, is that there can be only one interest rate for the euro. My guess is that we will catch the first glimpse of a change in ECB policy – but let’s see.