Interest rates decisions provide a focus for investors this week, with the Bank of England expected to cut rates to a new historic low of 1 per cent on Thursday, while the European Central Bank has already signalled that is is likely to keep rates on hold at 2 per cent.

Australia is set to cut rates by 50 basis points to 3.75 per cent on Tuesday, and on Wednesday Norway is expected to follow December’s aggressive cut of 175bp with a further reduction of 50bp to 2.5 per cent.

In a packed week for data releases, a key theme will be the hunt for “chinks of light” and any signs of activity stabilising, particularly in January’s purchasing managers’ surveys for manufacturing, due today, and the service sector, due on Wednesday.

US employment growth chart

The UK manufacturing PMI is likely to show a further decline from 34.9 in December to 34.4 in January, to be followed on Friday by the official manufacturing output data, which are expected to show the downturn deepening from -7.4 per cent year-on-year in November to -8.4 per cent in December. This would mean manufacturing output fell 2.3 per cent last year compared with 2007, the weakest annual about-turn since 1991.

The UK service sector PMI is seen as stabilising at 40.6 in January, only marginally higher than November’s record low. The Bank of England will have updated growth and inflation forecasts to consider at its meeting this week and a key consideration will be the impact of sterling’s steep slide, particularly on the outlook for inflation.

The initial estimates for the eurozone’s manufacturing and service sector PMIs in January both showed a slight improvement from December’s record lows. However, activity continued to contract last month, so to assume the surveys indicate that activity is bottoming out could be premature.

Eurozone retail sales data for December, out on Wednesday, will be soft, with a decline of 0.2 per cent expected. Further weakness in consumer spending in 2009 appears inevitable because of rising job losses.

Thursday brings German factory orders data, which have been very weak due to the abrupt contraction in global trade flows. A fall of 2 per cent in factory orders is expected for December, which would take the year-on-year decline from -27.2 per cent in November to -24.2 per cent.

The sharp decline in orders, longer winter production holidays and shift curtailments will mean a big fall in German industrial production data for December, due on Friday, which are expected to show the year-on-year decline steepening from -6.3 per cent in November to -9.1 per cent.

In the US, January employment data, due on Friday, are expected to show non-farm payrolls falling by 500,000 following December’s decline of 524,000. This would increase the unemployment rate from 7.2 to 7.4 per cent.

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