Elwin de Groot, Senior Eurozone Strategist at Rabobank, suggests that the Bank of England is expected to keep policy settings unchanged at today’s meeting, which will also see the release of the Bank’s latest Inflation Report and the meeting’s minutes.
“And, as if that weren’t enough, Governor Carney will step up to the plate to hold his quarterly press conference (the reason why this day has been dubbed “Super Thursday”). This, we think, should give the BoE ample of opportunity to give the recent weak economic data (e.g. last week’s weak set of purchasing managers’ indices and yesterday’s shocking manufacturing output data) some more (blue?) colour and context.
What’s more, Carney has previously warned that a Brexit was the greatest domestic risk facing the economy. Since this uncertainty now adds to the headwinds to growth, he may also decide to express some of his thoughts on these Brexit risks. In any case, there seems to be a strong chance that the BoE may revise down its projections for economic activity.
The likelihood of changes to the inflation outlook are less straightforward. While slower growth implies weaker demand, this year’s softer tone of sterling could boost cost-push inflation, i.e. not the demand-pull inflation the Bank is aiming for. Moreover, over the past month there have been mixed signals on the pace of wage growth and without a recovery in earnings we expect the first BoE rate hike of the cycle to be delayed at least until May 2017.”