Meanwhile, the consensus is for the Department for Communities and Local Government's house price index (Tuesday) to show that the year-on-year (y/y) fall in house prices moderated to 9.2% in July, from 10.7% in June and the peak decline of 13.6% in March.

Latest data and survey evidence have consistently pointed to modestly, but steadily improving housing market activity and at least a temporary firming in prices. Indeed, prices seem likely to firm further in the near term. Nevertheless, given ongoing tight credit conditions, still relatively poor economic fundamentals (particularly high and rising unemployment, and muted wage growth), and the fact that affordability ratios are starting to move up again, we suspect that house prices are highly likely to suffer relapses over the coming months. Much will clearly depend on whether the economy can sustain a probable return to growth in the third quarter, how much further unemployment rises, how quickly and to what extent credit conditions ease, and how many properties come on to the market over the coming months.

Consumer price inflation data for August (Tuesday) should show a resumption of the downward trend, reflecting still-favorable base effects as the lagged impact of oil prices reaching a record high of US$147/barrel in July 2008 drops out of the calculation. In addition, the British Retail Consortium (BRC)'s shop price deflator indicated that the y/y rise in food prices fell sharply in August. The BRC deflator also pointed to significant discounting in August, reflecting the ongoing pressure on retailers to price competitively. Nevertheless, there will be some upward influence on inflation from oil prices reaching a 2009 high in August.

On balance, we expect consumer price inflation to have fallen to 1.4% in August, from 1.8% in both July and June and a peak of 5.2% in September 2008. This would take consumer price inflation further below the Bank of England's target rate of 2.0%. It would also take consumer inflation down to its lowest level since November 2004. Core consumer price inflation is seen moderating to 1.6% in August, from 1.8% in July. Nevertheless, annual underlying retail price inflation should have edged up to 1.3% in August, from 1.2% in July, primarily because of higher housing cost elements (these are not included in consumer price inflation). The y/y decline in retail prices is seen remaining at 1.4% in August after moderating to this level from 1.6% in June. Data out Wednesday are expected to reveal that unemployment is continuing to rise sharply on the International Labour Organization (ILO) measure, which currently appears to be giving a truer picture of the labor market than the much-narrower claimant-count measure. There are likely to have been a lot of students who left college or school at the beginning of the summer who could not get a job and therefore went straight into unemployment. These people do not show up on the claimant-count data because they are not eligible for benefits. We suspect that the number of unemployed on the ILO measure could well have risen by over 200,000 again in the three months to July after jumping by 220,000 in the three months to June. This would take the number of unemployed on the ILO measure up to 2.5 million and push the unemployment rate up to 8.0%.

Unemployment still looks likely to reach 3 million in 2010, and could go higher. Despite mounting signs that the economy will return to growth in the third quarter, unemployment is a lagging indicator and the sharp overall economic contraction suffered between the second quarter of 2008 and the second quarter of 2009 will continue to weigh on the labor market for an extended period. Furthermore, even if the economy does return to growth in the third quarter, activity is still unlikely to be strong enough for some considerable time to come to prevent further net job losses. In fact, we suspect that unemployment will rise for the rest of this year and much of 2010. Meanwhile, we expect claimant-count unemployment to have risen by 25,000 in August after increasing by 24,900 in July. This would take unemployment on this measure up to 1.59 million and the claimant-count unemployment rate up to 5.0%.

Average earnings are expected to have risen by a modest 2.1% y/y in the three months to July as they were limited by reduced bonus payments. In addition, underlying average earnings are under serious downward pressure from sharply higher and rising unemployment, elevated job insecurity, negative retail price inflation, and the need for companies to contain their costs in the face of still-muted demand. Thus, annual underlying average earnings growth (excluding bonus payments) is seen moderating to 2.4% in the three months to July, which would be the lowest level since the series began in 2001. These rates are substantially below the 4.5% level that the Bank of England considers broadly consistent with its 2.0% consumer price inflation target.

Latest data show that the manufacturing sector achieved healthy output growth in both June and July while survey evidence has been generally firmer in recent months. The manufacturing sector is currently benefiting markedly from sharply reduced stock levels, while the relatively weak pound is helping the sector by making U.K. manufacturers more competitive in their domestic markets as well as through helping exporters. On top of this, demand is showing signs of picking up at least temporarily in important overseas markets as well as at home. We expect the Confederation of British Industry's industrial trends survey for September (Wednesday) to continue the improving trend. Specifically, we forecast the survey to reveal that the balance of manufacturers reporting that their overall orders were at normal levels rose to -48% in September, from -54% in August and a 17-year trough of -58% in March. This is likely to be helped by an improvement in the export orders sub-index. In addition, the balance of companies expecting output to rise over the next three months may well have risen further after rising to -5% in July, which was the best level since June 2008.

Retail sales (Thursday) are forecasted to have slowed in August, having been lifted in July and, especially, June by good weather and the summer sales. Survey evidence for August from the BRC was markedly softer. Even though low mortgage payments, reduced utility bills, and easing inflation are boosting the purchasing power of a good many people, consumers largely still need to be encouraged to step up their discretionary spending by factors such as particularly good bargains or fine weather (which encourages spending on clothes, sportswear, gardening products, etc). The fact is that consumers continue to face serious obstacles that are likely to limit spending for some time to come. These notably include sharply higher and rising unemployment, low earnings growth, and heightened debt levels. Furthermore, many consumers are keen to limit their expenditure because of still-serious concerns about the economy and their jobs, as well as a need/desire to improve their personal finances. Meanwhile, credit conditions facing consumers are still tight.

The public finances for June (Friday) will undoubtedly make for their now-normal dismal reading. Tax revenues are being decimated by extended, extremely weak economic activity, deteriorating corporate profitability, sharply higher and rising unemployment, markedly reduced bonus payments, last December's value-added tax cut, and muted housing market activity. Meanwhile, sharply higher unemployment is also resulting in higher benefit claims, thereby pushing up government expenditure. Consequently, we expect the Public Sector Net Borrowing Requirement (PSNBR) to have soared to £18.0 billion in July, from £9.8 billion in August 2008.