The Week Ahead: Heaven knows, rate-setters could make us miserable now

To raise or not to raise? That is the question which will be gripping the City this week as the Bank of England's Monetary Policy Committee meets for its monthly interest rate-setting discussion.

To raise or not to raise? That is the question which will be gripping the City this week as the Bank of England's Monetary Policy Committee meets for its monthly interest rate-setting discussion.

It is expected to be an extremely close call, and economists are divided as to what will happen. That rates will go up, everyone agrees; the question is when. Philip Shaw at Investec believes the second rise in two months will be announced on Thursday. He says: "The fundamental background clearly supports the case for higher rates this week, with the MPC increasingly concerned that consumer spending, household borrowing and house prices have refused to respond to the interest-rate medicine administrated so far."

Others, however, disagree. John Butler at HSBC says the MPC will "want to see the impact of May's rate decision on the economy and the consumer in particular" before acting.

The nine-strong committee, led by the Bank's Governor, Mervyn King, is likely to discuss a quarter-point rise. There is a slim chance, however, that it could seek to break the back of house-price inflation with a "shock" half-point rise.

Other economic news to watch out for - after all, the MPC will be - includes the British Retail Consortium's sales monitor tomorrow and an update on manufacturing output later in the week. Of most interest will be the BRC's update, with economists scrutinising the findings to see if they back up the extremely upbeat picture of high-street spending recently painted by a CBI survey.

On the markets, the FTSE 100 gears up for its quarterly reshuffle. The final decision will be based on Tuesday's closing prices, and will then be subject to review, but going on Friday's end numbers, the likely loser looks to be engineering group GKN. Taking its place will be Capita, the services giant which runs the congestion charge scheme in London.

Otherwise, corporate news is relatively thin on the ground, with only a handful of companies reporting. There will, however, be some recognisable names mixed in with the minnows. One is First Choice Holidays, which produces interim numbers on Tuesday. Analysts will be hoping for further good news following an upbeat trading statement at the end of April. Then, the company said sales volumes were on the increase following a fall-off at the end of 2003. The tourist sector has taken a battering in recent years but most are now hopeful the worst is over.

Also reporting figures is Sanctuary, the music group which recently signed Morrissey, former frontman of The Smiths. Analysts are looking for an increase in full-year revenues of around 27 per cent, to £83.2m, and pre-tax profits up around 4 per cent, although acquisitions and disposals will cloud the numbers. Last year, for example, Sanctuary sold its screen division and bought MWE, which manages pop singer Beyoncé. Investors will now want some clarification on how such deals will affect the company's performance over the coming months.

Others reporting at home include Northumbrian Water and Severn Trent, while no-frills carrier easyJet publishes traffic figures for May.

In Europe, two of the biggest names reporting are Spanish retail group Inditex, owner of fashion chain Zara, and luxury goods business Richemont. The Swiss group, home to Cartier, Mont Blanc and Dunhill, is expected to show a 2 per cent decline in earnings but current trading is predicted to be strong, based on favourable comparisons with the previous year (when war and Sars dominated the headlines) and optimistic reports from rivals.

On the same day, Inditex publishes first-quarter results. The focus here will be on current trading, gross margins and the status of under-performing brands. Underlying sales growth is pencilled in at around 6 per cent.

Stateside, fashion label Tommy Hilfiger and software giant Oracle produce numbers. But the biggest news will be Enron, it of the corporate scandal to end all corporate scandals, which is waiting for a judge in the US bankruptcy court to give its Chapter 11 restructuring plan the all-clear. Should that happen this week, it is expected to emerge with just one-sixth of the assets it was thought to have had at its peak. The energy trader still has a number of creditors, and some businesses earmarked for sale. Once that is done, the name Enron will once and for all be consigned to Wall Street's dustbin.

However, the scandal is still proving hard for the group to shake off. Only last week, tapes were aired of energy traders gloating about wildfires in California and admitting to manipulating prices to benefit form the energy crisis.

CALENDAR

Tomorrow 7

UK: Results: (Final) Acal, Belhaven, Healthcare Enterprise, Hyder Consulting, Inflexion, Merrydown, Top Ten holdings; (Interim) Sanctuary Group.

Tuesday 8

UK: Results: (F) Chapelthorpe, Christian Salvesen, CML Microsystems, Focus Solutions, Intertechnology, Intelek, James Cropper, London Merchant Securities, Micap, Patientline, RPC Group, Severn Trent, Walker Crips Weddle Beck, Warner Estate; (I) Clapham House, First Choice Holidays, London Scottish Bank, Victrex.

Wednesday 9

UK: Results: (F) Burtonwood Brewery, Erinanceous Group, Helical Bar, Kewill Systems, Telecom Plus, Yates Group; (First quarter) Signet Group.

Thursday 10

UK: Results: (F) Alba, TBI, Teather & Greenwood, Wincanton; (I) Dewhurst.

Friday 11

UK: Results: None scheduled