If inflation climbs to 2.3%, interest rate cut could be some way off

When the bank delivered a quarter-point base rate cut to 5.25 per cent last week it showed a belief that there was still some room to move, but with Consumer Prices Index (CPI) inflation forecast to have risen to at least 2.3 per cent in January, from 2.1 per cent in December, further cuts could be some time away.

Wednesday's report may confirm fears that a rise in prices last month may only be the start of a raft of increases.

The Bank's Governor, Mervyn King, has warned that rises in food and energy costs are likely to send inflation well beyond the 2 per cent target this year, which will prompt letters of explanation to the Chancellor.

While the market is prepared for the figures, the statements from the Bank will be looked at closely for signs of further action to curb a slowing housing market.

With the US Federal Reserve showing a willingness to dramatically cut rates across the Atlantic, the market may hold false hopes for similar strong action from the Old Lady of Threadneedle Street.

Drinks giant Diageo could give an indication of whether the US economy is indeed slowing when it reports its interim results on Thursday.

The City expects the owner of big brands including Johnny Walker to reveal further strong growth of Scotch in Latin America and Asia, helping offset a weakening UK market, hit by the smoking ban. But the real test will be the US market – the world's largest – where Diageo makes more than a third of its earnings.

Analysts expect a 5 per cent rise in operating profits to 1.36 billion for the six months to 31 December, while the company is targeting 9 per cent growth for the year.

The week will kick off with a keenly awaited strategy review from GCap Media's new chief executive Fru Hazlitt today. After taking on the post last year, Hazlitt has already fended off a 190p a share bid from Global Radio last month, but has resisted pressure to unveil her plans for the company early.

Reckitt Benckiser, the household goods company that owns a number of well-known brands, is expected to reveal its defensive qualities by posting a 13 per cent rise in underlying profits to 1.2bn for 2007, despite a slowing final quarter.

Panmure Gordon analyst Graham Jones said that during the period of negative consumer sentiment in 2001 to 2003, Reckitt managed sales growth of more than 7 per cent, adding that if Reckitt could not steer through more difficult markets, "we doubt anyone can".

BRITISH ENERGY OUTPUT CUT?

NUCLEAR operator British Energy will reveal its third-quarter results on Wednesday along with a special dividend, but the news will be overshadowed if the Scottish company announces another production cut.

Last week BE, which has been beset by problems with its ageing boilers, said more inspections would be carried out this year, including at Hunterston in Ayrshire. This has led to speculation the company could further cut production targets.