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The 10th pre-Budget report by UK finance minister Gordon Brown, due on Wednesday, is the week’s central event, since no change is expected for UK interest rates on Thursday, while a rise in eurozone interest rates to 3.5 per cent on the same day is widely seen as a done deal.

Mr Brown will raise his forecast for growth this year to about 2.6 per cent and new green measures are likely to be introduced after the Stern report. However, the longer-term outlook for public spending will not be addressed until next summer’s Comprehensive Spending Review.

UK data releases include the November purchasing managers’ service-sector survey, due on Tuesday, which is expected to ease from 59.3 in October to 58.5, indicating that growth remains robust.

The BRC November retail sales report, also due on Tuesday, is expected to show like-for-like sales growth falling from 1.6 per cent in October to 1 per cent with a weak reading expected to raise concerns about the outlook for consumer spending at Christmas.

On Wednesday, UK October manufacturing output growth is expected to rise from 1 per cent year-on-year in September to 2.9 per cent.

Industrial production in Germany is enjoying robust growth. The November IFO survey showed export expectations at record levels and this is expected to translate into strong factory orders in October, due on Wednesday. The consensus forecast suggests growth will ease from 9.6 per cent in September to 9.1 per cent.

Germany’s industrial production growth in October, due on Friday, is expected to slow from 6.1 per cent in September to 5.5 per cent. The eurozone service-sector purchasing managers index is expected to rebound from 56.5 in October to 56.6 in November’s survey, due on Tuesday.

New forecasts for inflation and growth in 2007 and 2008 will be presented by the European Central Bank on Thursday, providing greater clarity on the outlook for eurozone interest rates next year.

The ECB remains concerned about the rapid growth in money supply and the possibility of consumers’ inflation expectations ratcheting upwards, so Jean-Claude Trichet, ECB president, is expected to retain a hawkish tone at Thursday’s press conference.

Eric Chaney, European economist at Morgan Stanley, expects the ECB to raise rates to 3.75 per cent in March and to 4 per cent in September, slowing the pace of monetary tightening compared with this year. Morgan Stanley has raised its 2007 gross domestic product growth forecast to 1.9 per cent from 1.6 per cent previously. Mr Chaney expects growth to remain positive in the first quarter in spite of the VAT increase in Germany.

Mr Chaney highlights the improvement in hourly productivity growth – up from an annual average of 1.3 per cent between 1999 and 2005 to 2.4 per cent this year – as providing an important boost to corporate profitability and economic growth.

In the US, the November Institute of Supply Management non-manufacturing survey, due on Tuesday, is expected to fall from 57.1 in October to 56.

The employment measure fell to 51 in October and could signal a contraction in the past month as the housing market slowdown has led to job losses in construction and real estate. Friday brings employment data for November with non-farm payrolls expected to rise by 123,000 after an increase of 92,000 in October.

Copyright The Financial Times Limited 2017. All rights reserved.
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