Data out on Wednesday are expected to reveal that unemployment is still rising, but at a markedly reduced rate compared with earlier this year. We expect the number of jobless on the International Labour Organization (ILO) measure to have risen by around 65,000 in the three months to September, which would be down from increases of 88,000 in the three months to August, 210,000 in the three months to July, and a peak of 281,000 in the three months to May. Even so, this would take the number of unemployed on the ILO measure up to 2.5 million and push the ILO unemployment rate up to 8.0%. Meanwhile, we expect claimant-count unemployment to have risen by 22,000 in October, which would be similar to the increases of 20,800–25,200 seen over the previous three months, and down from a record drop of 136,600 in February. This would take unemployment on this measure up to 1.629 million and the claimant-count unemployment rate up to 5.1%.

There is a significant upside risk to this forecast, relating to youth unemployment. The number of unemployed people aged under 25 unexpectedly dipped to 946,000 in the three months to August from 947,000 in the three months to July. Nevertheless, it seems highly likely that youth unemployment will rise significantly further over the coming months because of a number of people who left college or school at the beginning of the summer being unable to get a job. It may be that, given the poor state of the labor market, a substantial number of those leaving school and college decided to take time off or travel and delay looking for a job. Now that the summer is over and pessimism about the economic outlook has eased, this year's school and college leavers may increasingly look for a job and find that there are still few available.

Despite the recent marked slowdown in the rise of unemployment, we suspect that it is still going to increase for many months to come. Indeed, the number of unemployed could very well reach 3.0 million on the ILO measure by early 2011. Although the economy looks like it is finally returning to growth in the fourth quarter, unemployment is a lagging indicator and the sharp overall economic contraction suffered between the second quarter of 2008 and the third quarter of 2009 is continuing to weigh down on the labor market. 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 much, if not all, of 2010.

Average earnings are expected to have risen by just 1.5% year-on-year (y/y) in the three months to September as they were limited by reduced bonus payments. Furthermore, underlying average earnings are under serious downward pressure from high 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 and reduced profitability. Consequently, annual underlying average earnings growth (excluding bonus payments) is seen moderating to 1.8% in the three months to September, which would be the lowest level since the series began in 2001. These earnings growth rates are substantially below the 4.5% level that the Bank of England considers broadly consistent with its 2.0% consumer price inflation target.

Also on Wednesday, the Bank of England releases its November Quarterly Inflation Report. The Monetary Policy Committee (MPC) would have had the central bank's new GDP and inflation forecasts available when it decided to increase the amount being spent on quantitative easing by a further £25 billion at its 4–5 November meeting. This was less than the £50-billion extension to the quantitative easing program that the MPC had opted for at both its May and August meetings, but still took the total amount up to £200 billion. We expect the Quarterly Inflation Report to reveal that the Bank of England believes that the economy is now starting to recover but still faces serious obstacles to healthy, sustainable growth. The survey is also likely to modestly raise the consumer price inflation profile, particularly given that it has been stickier than the Bank of England expected in its August report, but still show inflation around its 2.0% target level on a two-year horizon. The report is likely to highlight the major uncertainties that continue to surround both the growth and inflation outlook.

The British Retail Consortium (BRC) retail sales monitor for October (overnight Monday/Tuesday) is expected to show relatively healthy sales. The consensus is for total retail sales to have risen by 4.7% y/y, while sales are seen growing by 3.0% on a like-for-like basis (which strips out the effect of additional floor space). The Confederation of British Industry (CBI) has already released its distributive trades survey for October, which showed that the balance of retailers reporting that their sales volumes were up y/y rose to a 22-month high of +8%. It needs to be borne in mind that y/y comparisons in retail sales are now benefiting from the fact that sales were particularly weak a year ago.

Low mortgage payments, reduced utility bills, and more moderate inflation are boosting the purchasing power of a good many people. Nevertheless, consumers continue to face serious obstacles that are likely to limit the upside for spending for some time to come. These obstacles notably include high and rising unemployment, low and slowing 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 the need/desire to improve their personal finances. Significantly, the Bank of England has identified the need for consumers to improve their balance sheets as a major factor that is liable to limit the pace of economic recovery. Meanwhile, credit conditions facing consumers are still tight.

Furthermore, value-added tax (VAT) will rise from 15.0% to 17.5% in January, although this may very well lift retail sales over the next few weeks as consumers look to beat the VAT hike. Sales of big-ticket items seem particularly likely to rise ahead of January's VAT hike. Consumers will also be wary that further out they are very likely to face higher taxes as part of the major corrective action that will be needed to rein in the terrible government finances.

October's housing market survey from the Royal Institute of Chartered Surveyors (overnight Monday/Tuesday) is expected to show that housing market activity is still rising, but at a reduced rate. The survey is likely to reveal that buyer enquiries increased for a 12th month in a row in October, but at a slowing pace. This is expected to feed through into a seventh successive rise in completed sales per surveyor, although these will highly likely still be well below long-term norms. Of particular interest will be whether the number of properties coming onto the market is rising because of vendors being attracted by recent firming prices. There was some evidence of this in the August survey, but the rate of increase slowed in September. The balance of surveyors reporting that house prices increased over the previous three months is expected to have climbed to +27 in October from +22% in September and +10% in August, which was the first positive balance for two years.

Meanwhile, the consensus is for the Department for Communities and Local Government's house price index (Tuesday) to show that the y/y fall in house prices moderated to 4.9% in September, from 5.6% in August and the peak decline of 13.6% in March.

Buyer interest has been lifted appreciably by the pretty substantial overall fall in house prices from their autumn 2007 peak levels through to their early-2009 lows and very low mortgage interest rates, and this has gradually but steadily fed through to lift housing market activity. Furthermore, house prices are currently being supported by a lack of properties for sale. Nevertheless, housing market activity is still muted compared with long-term norms, while credit conditions remain tight and economic fundamentals are still far from favorable for the housing market. Consequently, we suspect that house prices are likely to suffer relapses over the coming months despite their current firmer tone.

The trade deficit (Tuesday) is expected to have been essentially stable at a 2009 low of £2.3 billion in September, which would be clearly below the average monthly deficit of £2.6 billion in the first eight months of 2009 and substantially below the average monthly shortfall of £3.2 billion in 2008. The sharp overall depreciation of sterling has boosted the competitiveness of U.K. exporters, while there are increasing signs that domestic demand is now picking up in key overseas markets, notably including the United States and the Eurozone. Nevertheless, the improvement in the trade surplus may be limited by firming U.K. domestic demand lifting imports.

10 Nov - RICS House Price Balance, October: +27%
10 Nov - DCLG House Prices, September (Year-on-Year): not forecast
10 Nov - British Retail Consortium Monitor Total Sales, October (Year-on-Year): not forecast
10 Nov - British Retail Consortium Monitor Like-for-Like Sales, October (Year-on-Year): not forecast
10 Nov - Visible Trade Balance, September (GBP/Month): -6.1
10 Nov - Non-EU Visible Trade Balance, September (GBP/Month): -3.2
10 Nov - Total Trade Balance, September (GBP/Month): -2.3
11 Nov - Claimant-Count Unemployment Rate, October (%): 5.1%
11 Nov - Claimant-Count Unemployment Change, October (000s): +22
11 Nov - International Labour Organization Unemployment Rate, September (%): 8.0%
11 Nov - Average Earnings including bonus, September (3-Month/Year): +1.5%
11 Nov - Average Earnings excluding bonus, September (3-Month/Year): +1.8%