The British Retail Consortium (BRC) retail sales monitor for December (out overnight on Monday/Tuesday) is expected to show a marked pick up in sales compared to November. There were reports of a late pick up in shopping just before Christmas, which may have been due to a number of consumers delaying their purchases in the hope of getting some late bargains. There also appears to have been relatively healthy early interest in the post-Christmas clearance sales, which would be consistent with still pressurized consumers trying to take advantage of genuine bargains. In addition, sales may well have been lifted by consumers looking to make purchases of big-ticket items, in particular ahead of value-added tax rising back up from 15.0% to 17.5% at the beginning of January. John Lewis, in particular, Shop Direct, JD Sports, Asda, and Sainsbury are among retailers that have reported marked year-on-year increases in sales in December. The consensus is for the BRC to report that total retail sales rose 5.0% year-on-year in December, while sales are expected to have increased 2.5% on a like-for-like basis (which strips out the effect of additional floor space). This would be up from respective increases of 4.1% and 1.8% in November. It needs to be borne in mind that year-on-year comparisons in retail sales are now benefiting from the fact that sales were particularly weak a year ago.

A strong December BRC survey would reinforce belief that that the economy exited recession with significant expansion in the fourth quarter of 2009. The suspicion remains that the upside for consumer spending—and hence overall economic growth—will be limited in 2010. While low mortgage interest rates and relatively low inflation are boosting the purchasing power of many consumers, the upside for spending is likely to be limited for some time to come by high and still rising unemployment, low earnings growth, and consumers' need/desire to improve their finances in the face of high-debt levels and a still worrying economic situation. Significantly, the Bank of England has identified the need for consumers to improve their balance sheets as a major factor that could limit economic recovery over both the short and the medium-term. Consistent with this the household savings ratio rose to an eleven-and-a-half year high of 8.6% in the third quarter of 2009, while latest Bank of England data show that there was a fifth successive monthly net repayment of consumer credit in November. Meanwhile, credit conditions facing consumers are still pretty tight. 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.

The December housing market survey from the Royal Institute of Chartered Surveyors (also out overnight Monday/Tuesday) is expected to show that housing market activity is still rising but at a reduced rate, as was the case in the November survey. Of particular interest given that a shortage of properties has been supporting house prices in recent months will be whether or not the number of properties coming onto the market is picking up due to vendors being attracted by the recent steady firming in prices. There has been some evidence of this in recent surveys. Indeed, the RICS reported that the net balance of new instructions recorded its sixth consecutive positive reading in November and was at its highest level since May 2007. Even so, supply is currently still lagging behind demand. The balance of surveyors reporting that house prices increased over the previous three months is expected to have edged up further to +36% in December after rising to +35% in November from +34% in October and +21% in September.

We expect industrial production (out on Wednesday) to have grown 0.3% month-on-month in November, having been disappointingly only flat in October. This would cause the year-on-year decline to narrow to 6.0% from 8.4% in October. Within this, manufacturing output is also forecast to have grown 0.3% month-on-month in November after being unchanged in October, with the year-on-year drop moderating to 5.0% from 7.8%.

Latest manufacturing surveys from the purchasing managers, in particular, and the Confederation of British Industry (CBI) have shown improvement overall suggesting that the sector ended a dismal 2009 on the up. Indeed, industrial production should have made a positive contribution to GDP growth in the fourth quarter of 2009 for the first time in two years. In the near term at least, manufacturers will benefit from markedly reduced stock levels, while the weak pound should help exporters in addition to making U.K. manufacturers more competitive in their domestic markets. Survey evidence suggests that domestic demand for manufactured goods is currently improving, while U.K. exporters hopefully will increasingly benefit from recently improved domestic demand in important overseas markets, including the Eurozone and the United States. Even so, the manufacturing sector is still far from racing ahead and serious doubts remain about the strength of demand for manufactured goods over the medium term, particularly once stimulative measures start being withdrawn.

The total trade deficit (out Wednesday) is expected to have narrowed to £2.9 billion in November from a 13-month high of £3.2 billion in October. Nevertheless, this would still be above the average monthly deficit of £2.7 billion in the first 10 months of 2009. Similarly the visible trade deficit is forecast to have narrowed to £6.8 billion in November from a nine-month high of £7.1 billion in October. Again though, this would still be above the average monthly deficit of £6.7 billion in the first 10 months of 2009. While it is hoped that the trade deficit will narrow over the coming months, as exports increasingly benefit from sterling's weakness and improving domestic demand in key overseas markets, the trade deficit is currently being lifted by substantially increased car imports resulting from demand being pushed up by the government's car scrappage scheme.

12 Jan - British Retail Consortium Monitor Total Sales, December (Year-on-Year): not forecast
12 Jan - British Retail Consortium Monitor Like-for-Like Sales, December (Year-on-Year): not forecast
12 Jan - RICS House Price Balance, December: +36%
12 Jan - Visible Trade Balance, November (GBP/Month): -6.8
12Jan - Non-EU Visible Trade Balance, November (GBP/Month): -3.4
12 Jan - Total Trade Balance, November (GBP/Month): -2.9
13 Jan - Industrial Production, November (Month-on-Month): +0.3%
13 Jan - Industrial Production, November (Year-on-Year): -6.0%
13 Jan - Manufacturing Output, November (Month-on-Month): +0.3%
13 Jan - Manufacturing Output, November (Year-on-Year): -5.0%