After the uplift in mood that followed the rapid decline of inflation, rising air fares and tax on private school fees are expected to drive price growth back up to 2.8% in January, from 2.5% in December and 1.7% last September. This will be its highest level in 10 months. 

The Bank of England has warned the markets that inflation will hit 3.7% this year, while the National Institute of Economic and Social Research (NIESR) has predicted 3.2%.

The return of inflation comes at a bad time for businesses, individuals and the UK government ahead of a leap in labour costs coming into effect in April, and the spending review.

Data this week will also likely reveal that the unemployment rate has increased to 4.5% from 4.4%. The Bank of England says it could reach 4.75% by the end of the year.

With economic growth at dismally low levels, talk of stagflation persists, though optimists are hoping that Donald Trump’s attempts to bring the war in Ukraine to an end may lead to lower energy prices. On the other hand, his threat to impose trade tariffs is a big factor in firms holding back on hiring staff.

Rising inflation could dampen enthusiasm for interest rate cuts, though two members of the Bank of England’s monetary policy committee voted for a sharper 50 basis points cut last time.

Bloomberg Economics Says: “With the economy weak we doubt it will stop the BOE from easing further. We expect three more 25 basis-point rate reductions in 2025.”

Lloyds Banking Group

Results for 2024 from Barclays and NatWest will help to set the tone for Lloyds’ results this week in a sector that appears to be shrugging off the uncertain outlook, according to AJ Bell analysts.

They say the FTSE 350 Banks index has been boosted by a combination of high net interest margins, moderate loan losses and generous cash returns to investors.

The index is up by 60% over the past year, to make it the single best performer out of the 39 industry groupings which make up the benchmark. That run means the FTSE 350 Banks index trades at its highest mark since the 2008 crash.

“This is partly because aggregate profits across the Big Five FTSE 100 banks are expected to have set new record highs in 2024, and the same goes for aggregate cash returns across dividends and buybacks,” says AJ Bell in a briefing note.

Nevertheless, analysts are taking no chances, and they expect a slight dip in the Big Five’s total pre-tax profit to £48bn from £50bn in 2024.

At Lloyds, which embraces Bank of Scotland, Halifax and Scottish Widows, pre-tax income is expected to drop to £6.4bn in 2024, down from £7.5bn in 2023.

This is thanks in part to a decline in net interest margins, as the Bank of England slowly cuts headline rates, and provisions relating to the Financial Conduct Authority’s investigation into the car financing market. AJ Bell forecasts a further drop to £5.5bn for 2025, potentially for similar reasons.

The consensus among banking analysts is that Lloyds will recommend a total dividend of 3.09p for 2024, up from 2.65p in 2023, on top of a £2bn buyback. Chief executive Charlie Nunn is expected to announce further buybacks in 2025 up to a value of £1.6bn.

DIARY

Monday 17 February

• Full-year results from Moneysupermarket
• Firs-half results from Springfield Properties
• Rightmove UK house price index

Tuesday 18 February

• First-half results from InterContinental Hotels 
• UK unemployment

Wednesday 19 February

• Full-year results from BAE Systems, Glencore, HSBC and Rio Tinto
• UK inflation

Thursday 20 February

• Full-year results from Anglo American, Centrica, Lloyds Banking Group
• First-half results from Hays

Friday 21 February

• Full-year results from Standard Chartered
• GfK UK consumer confidence
• UK retail sales
• UK government borrowing figures