A better picture for the global recovery will be provided this week, as growth data from the U.S. and UK will be presented, while the BoE Minutes along with Euro-Zone confidence reports will follow up on condition in the continent’s conditions. Euro Zone Confidence The 17-nation economy will commence this week’s fundamentals with manufacturing and services sectors’ performance, with both expected to show unchanged conditions during the first month of 2011. Nonetheless, the rise in the value of the euro over the past weeks could offset the progress in both sectors due to economies reliance on weak euro to boost exports. Another factor comes at play, which is the recent increase in inflation levels, making it harder for manufacturers to continue improving due to higher input costs. Confidence probably increased in the region, supported by the buoyancy in Germany, the recovery leader in the zone. Expectations show that consumer confidence probably improved in the final January reading, while the economic, industrial and services confidence continued improving during January. Inflation threats surely add pressure on the ECB’s monetary policy, but overall, the bank assured markets on various occasions that price stability will remain the major driver of the bank’s policy. The Governing Council will continue on monitoring inflation threats as inflation levels warrant “very close monitoring”. Inflation rose in December by 2.2 percent, exceeding the bank’s desired rate of 2.0 percent. UK Growth Data, Minutes Report The British economy faces a hefty challenge in lowering its debt, which caused massive criticism to the second largest economy in Europe. Various economists predict that conditions slowed in the fourth quarter of 2010, resulting in a close encounter with a double-dip recession if the deterioration exceeds estimates. The British economy will present its advanced 2010 fourth-quarter reading, with expectations that the economy expanded at 0.5 percent rate during the three-months ending December 31, this is compared with the expansion recorded a quarter earlier of 0.7%; the economy probable expanded by 2.6% during the final quarter of 2010. All eyes will be focused on this report, which comes a day ahead of BoE’s Minutes that is highly predicted to show a three-way split among board members. MPC member Andrew Sentance probably called again for another interest rate hike of a quarter percent, while keeping the APF program unchanged at £200.0 billion. MPC member Adam Posen probably called as well for the fourth-consecutive month in the opposite direction, of increasing the APF purchases by £50.0 billion, while preserving rates at 0.50 percent. The predicament for the bank is that both measures would send the economy to face a possible recessionary quarter in the upcoming period; raising interest rates and keeping APF unchanged would cause further tightening in credit conditions in the economy, while Posen’s stand of increasing APF purchases and preserving rates would spike inflation even further. Stagflation is a major issue in the royal country, where December’s CPI index rose beyond expectations to 3.7 percent, which is as well higher than the bank’s desired rate of 2.0 percent and the government’s upper-limit at 3.0 percent. BoE deputy governor Charles Bean expressed his concerns about inflation earlier last week where he said that “Given the unexpected strength of inflation in recent months, this risk has probably increased of late,” adding that “We shall be watching these indicators, and their impact on wages and prices, like proverbial hawks.” Inflation “could indicate that the margin of spare capacity is not as large as the collapse in activity might suggest,” where “If all goes to plan, however, and private final demand continues to pick up the baton as the fiscal consolidation proceeds, then the margin of spare capacity will shrink and it will at some juncture become appropriate to begin withdrawing the current extraordinary degree of monetary stimulus,” Bean said. On the other hand, The Confederation of British Industry (CBI) projects that the BoE will raise interest rates in the upcoming six-months to tackle elevated inflation levels. The CBI projects an increase of a quarter-point each quarter, starting Mid-2011 until rates reach 1.5% – 1.75% by Mid-2012.

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