The Week Ahead: Between Northern Rock and a hard place for growth

After the flood of retail sector data, the market returns to the big picture - the state of the economy and the future direction of UK interest rates.

The figures for UK fourth- quarter GDP data are released on Wednesday, with an econo- mists' consensus of a slightly underwhelming 0.5 per cent growth. However, if the figure comes in at 0.4 per cent, this, says one economist, "would be very disappointing and a definite market mover".

Poor data could spark interest in the Bank of England's Monetary Policy Committee (MPC) minutes for January, to gauge the extent of any dissent from the policy of holding rates steady. The market is also looking to the first official figures for US GDP, with HSBC forecasting an annualised fourth- quarter growth rate of 1.9 per cent.

The Government publishes the terms of reference for its long-awaited Energy Review tomorrow, with expectations of a pro-nuclear and renewable- energy stance. The review comes at an interesting time given the Iranian standoff, gas supply disruptions in Europe and soaring energy prices.

Benefiting from record commodity prices is BHP Billiton. The mining giant, whose share price has surged by 74 per cent to 1,020p since the start of 2005, publishes it quarterly production report this week. Analysts predict a pretty positive announcement given the expansion of its operations and impressive figures earlier this month from rival Rio Tinto.

A healthy result is also expected from Northern Rock, the first of the banks to report in this period. But investors should be wary of extrapolating the result to the rest of the sector, as Northern Rock is a mortgage specialist. Analysts predict a pre-tax profit of around £495m - an 11 per cent increase over 2004. This is likely to be the sector's strongest profit this reporting season, driven by an impressive mortgage pipeline.

Northern Rock's share price has jumped by 26 per cent since October, outperforming the bank index by 12 per cent. In recent months, banks have produced a solid round of trading updates, mortgage data has been strong and investors have been heartened by talk of rate cuts. Northern Rock, which eschews a branch network for third-party distribution, cornered a hefty 14.2 per cent market share for new mortgages in its first half.

Ian Gordon, an analyst at Dresdner Kleinwort Wasserstein, says of the property-focused banks: "Mortgage margin erosion hasn't been as much as expected. Volumes have outstripped lenders' own expectations and they haven't had to chase lending.

"Market participants and investors are no longer scared about the housing bubble."

Staying in the financial world, insurers Prudential and Legal & General publish new-business figures for the fourth quarter this week. While the data should be positive, analysts are more interested in Prudential's strategy for Egg and US division Jackson Life, and any announcements from L&G's chief executive of three weeks, Tim Breedon.

WH Smith rounds off the retail sector's updates this week. Like its peers, its sales result is expected to be mediocre, with Christmas like-for-like sales forecast to fall by up to 5 per cent. The share price has fallen by almost 9 per cent since late December, after the profit warning from rival HMV and a downbeat commentary from journal and books distributor Dawson Holdings. But the picture may not be as black as it looks.

"This is a margin-led story", says Jonathan Pritchard, an analyst at Oriel Securities. "They are moving out of entertainment into higher-margin books and stationery, getting better sourcing from the Far East and cutting costs - all of which will flow through to the bottom line."

Some good news is expected from Tate & Lyle's trading update - with Barclays Capital believing that the sugar group will announce a positive result following negotiations on sweetener prices, and a strengthening price for ethanol. But Europe remains an issue, with a competitive market and high energy costs.

Analysts at Lehman Brothers think that Vodafone is in for another taxing week with the publication of the group's third-quarter key performance indicators. While news from Japan is expected to improve, Vodafone still faces European competition and regulatory pressures.

And finally, to the gritty world of construction. Mark Hughes, an analyst at Numis Securities, is forecasting an £81m pre-tax profit for residential homebuilder Crest Nicholson - a touch down on last year's result. "This isn't a reflection on the company, it's more a reflection of the entire housing market", he says.

CALENDAR

Tomorrow 23

UK RESULTS: (Final) Beale, Daejan, Research Now; (Interim) IG, NCC

US RESULTS: (F) Bank of America, Ford

Tuesday 24

UK RESULTS: (F) Domino Printing; (I) London Scottish Bank

US RESULTS: (F) 3M, Johnson & Johnson; (I) Sun Microsystems

Wednesday 25

UK RESULTS: (F) Media Square, Northern Rock; (I) Cozart, Stanley Leisure;

US RESULTS: (F) Colgate-Palmolive

Thursday 26

UK RESULTS: (F) Crest Nicholson; (I) Misys, Renishaw

US RESULTS: (F) AT&T, General Motors, Unisys; (I) Microsoft

EUROPEAN RESULTS: (F) Nokia; (1Q) Siemens

Friday 27

UK RESULTS: : none scheduled

US RESULTS: (F) Chevron, Halliburton