UK economy to remain in focus as inflation, wages and unemployment data due

1) UK Unemployment/Wages (Dec) – 17/02 –  wage growth continues to remain eye-wateringly high, with public sector pay growth well over double private sector levels. Wages for the 3-months to November remained sticky, coming in at 4.7%, however the difference between the private sector and public sector remained stark, with wages in the private sector at 3.6%, and the public sector at an inflation busting 7.9%. The number on PAYE payrolls fell by 43k in December, the 4^th successive monthly decline, and this trend could continue in January.        

2) UK CPI (Jan) – 18/02 –.  could this week’s inflation numbers for January point to a March rate cut. The recent Bank of England rate decision which saw a narrow vote of 5-4 to keep rates on hold means that the bar to cutting rates has fallen sharply in the last few weeks. The MPC seems to think that we could see headline inflation fall quite quickly to 2% by the middle of this year. Does this seem credible when wages and service sector inflation is still over double the target 2% rate? This seems a long way from when headline inflation in December jumped to 3.4%, up from 3.2% in November. As we look towards the latest January numbers there is a case for arguing that discounting in January, along with reductions in energy bills which could introduce a downside bias, but 2% by Spring of 2026 does seem somewhat ambitious, and let’s not forget that the Bank of England’s forecasting track record isn’t exactly stellar. Nonetheless a fall towards or even below 3% could give the central bank cover, especially if unemployment continues to rise. RPI also went higher in December rising to 4.2% from 3.8% while food inflation also jumped higher, rising to 4.5%, from 4.2%. In particular we saw increases in the cost of staples like milk and butter. It always amuses me when economists say that if you strip out the volatile elements like tobacco, food and energy then inflation was actually lower at 3.2%, as if people have a choice not to eat, drink or heat their homes.    .

3) Fed minutes – 18/02 – no change in policy at the recent Fed meeting, although there were 2 dissenters to the recent decision to keep rates on hold. While Trump appointee Miran voted to cut rates, he was also joined by Fed governor Christoper Waller, who perhaps was hoping that his dovishness would win him the Chairman nomination. That appears to have been in vain since it has now been announced that Kevin Warsh will be replacing Powell in May, however when one looks at the recent economic data, there’s little evidence of a significant slowdown in the US economy, with inflationary pressure still reasonably sticky and recent ISM data showing a resilient US economy. Weekly jobless claims have also been coming down, while payrolls growth while not going gangbusters does appear to be recovering after the sharp slowdown seen in October when the government shutdown. In light of these facts the minutes are unlikely to be that instructive, aside from the fact that the bar to rate cuts is likely to remain fairly high.  

4) UK Retail Sales (Jan) – 20/02 – having seen a mechanical rebound in consumer spending in December of 0.4%, after the weakness in October and November, which helped the UK economy eke out some growth in Q4, conventional wisdom would probably dictate that January would see a slowdown. The expectation of a rebound in December was supported by some fairly decent retail updates from many of the UK’s major retailers. Anecdotally there appears little sign that this pickup in consumer spending has subsided to any extent which offers some hope that January may also see a positive month as UK consumers book their easter or summer holidays to escape the overarching gloom that is currently clouding the economic outlook.

5) US Q4 GDP – 20/02 – how much did the US government shutdown cost the US in terms of economic output relative to Q3’s 4.4%? While we saw a solid rebound in economic activity when the government reopened in mid-November, it’s important not to underestimate the impact that the record long shutdown had on the first part of the quarter, as well as the remainder of the quarter. We did see a modest slowdown in consumer spending in September as well as October, with retail sales net flat over the 2-month period, however this saw a sharp reverse of 0.6% in November. With December retail sales also showing some resilience the US economy is still likely to have seen some decent growth in Q4, however it will still be likely well below the number seen in Q3.     

6) BAE Systems FY 25 – 18/02 – has spent a lot of the last 12 months trading between lows of 1,600p and recent record highs of 2,100p, with a rally from the December lows stemming from President Trump’s intervention over Greenland, where he called for a big increase in US military spending, of which BAE gets 50% of its revenues. The US operation in Venezuela also spoke to a more interventionist US foreign policy not to mention the threats delivered to the Iranian regime. This more aggressive approach from the US President has also had the effect of ramping up the pressure on European governments to do more when it comes to their own defence as opposed to freeloading off the US. In November BAE signed a deal with Denmark to deliver 44 CV90 combat vehicles to the tune of $450m. When BAE reported in H1 the firm upgraded its full year guidance on both sales and profits, with growth in all areas of the business. The company reported an 11% increase in sales for H1 to £14.62bn. Underlying earnings rose 13% to £1.55bn. Its order backlog fell by £2.4bn to £75.4bn. On guidance the company said that it now expected sales to increase between 8% and 10% and for earnings to increase between 9% and 11%, an increase of 100bps on both. The company also said that due to the share price increase in the last few months would mean that there would be fewer buybacks.

7) IHG FY 25 – 17/02 – since dropping to its lowest levels since 2024, in the tariff liberation day sell-off of April 2025, Holiday Inn owner IHG shares have rallied strongly, and although they remain below their 2025 peaks the slow recovery higher has been helped by positive trading updates in the months since then. In August the hotel chain reported H1 revenues of $2.5bn, an 8% increase on the previous year, with operating profit seeing a sizeable improvement of 13% to $604m. Revenue per room saw a big improvement in EMEA, rising 4.1%, helping to push global RevPAR up by 1.8%. On the downside, RevPAR in China fell -3.2%. The hotel chain opened 31.4k rooms in H1, a 75% increase on the year before. The dividend was increased by 10% to 58.6c a share, with the current $900m share buyback for 2025 47% complete. Slightly more concerning was a sizeable increase in net debt of 21% to $3.36bn, which was solely due to the payment of dividends to shareholders. Management said they remained on track to deliver on full year profits expectations, with the business generating cash flow, and continuing to add capacity there appears little reason to worry now. However, given the increasing concerns about the economic outlook and the hotel's expansion plans one has to question whether ramping up net debt levels is the best use of cash on a longer-term basis. In Q3 global RevPAR rose 1.4%, with openings up 17%, as 14.5k rooms were added across 99 hotels. Business was the outperformer with 4% increase in bookings with a 2% decline in leisure. Greater China remained the weak point with -1.8% decline in RevPAR, but still an improvement on the -3.2% in Q2. On the plus side EMEAA saw RevPAR of 2.8%, with the UK showing growth of 2.8%, and 3.3% in East Asia & Pacific. Continental Europe saw growth of 0.1%.

8) Walmart Q4 and FY 25 – 19/02 – it’s been a decent quarter for the Walmart share price, pushing up to new record highs, despite a brief dip in the wake of their Q3 numbers, which saw the price drop into its 200-day SMA before embarking on a strong rebound which has continued into 2026. Q3 revenues were $179.5bn, an increase of 5.8%. and profits of 62c a share, both of which comfortably came in ahead of forecasts. This was despite some weakness during the quarter due to the government shutdown which saw consumer spending slow due to the pausing of SNAP benefits. Walmart went on to raise its sales and profits guidance for the full year, raising full year net sales to between 4.8% and 5.1%, while pushing up the lower end of its EPS forecast from $2.52 to $2.58 share with the upper end at $2.63 per share. Comparable US sales were up by 4.5%, while the company continues to shoot the lights out on eCommerce with a 27% increase across all brands. The US saw a 28% increase in sales while international rose 26%. Walmart said tariffs were having an impact on costs, but that they were finding ways to manage these in a way that a lot of their competitors are finding difficult and which saw profit warnings from Target, Home Depot and Lowes in their recent Q3 updates.