Sterling markets will have a lot to chew on next week when a raft of UK economic news is published
Analysts said further evidence of moderating inflation, a stabilising housing market, easing wage pressures and solid Christmas retail sales are likely to emerge in a data-packed week
The early part of the week will be dominated by December inflation news, with Monday concerns over producer prices likely to be offset by news on Tuesday that consumer price inflation has fallen below the Bank of England's annual target rate of 2.0 pct
Analysts are confident that the spike in consumer price inflation in the second half of the year, following the surge in oil prices, may be dissipating now in the wake of steadier oil costs and below-trend economic growth
"We remain of the view that the peak in inflation is behind us and that we will see a further decline over the spring, despite a possible blip up next month," said Investec's chief UK economist Philip Shaw
The central bank's rate-setting Monetary Policy Committee has been reluctant to cut borrowing costs with inflation above target, despite August's quarter point cut. Analysts said a consistent decline below over the months ahead may prompt the so-called hawks on the nine-member panel to consider sanctioning a further cut in the key repo rate from 4.50 pct
On Wednesday, attention will shift towards the housing market, when the Royal Institution of Chartered Surveyors is expected to publish another healthy report. The main RICS house price balance for December is expected to rise to +10 from +4 in November, which marked the first positive outcome for 15 months. "This survey has improved for six consecutive months and it is hard to argue why that trend should suddenly have stopped in December," said HSBC economist John Butler, who is predicting a pick-up to +8
Meanwhile, official labour market data on Wednesday are expected to show a further increase in unemployment towards the end of 2005 as well as moderating wage pressures