The Bank of England monetary policy decision will be released on Thursday along with the summary and minutes. As ever, markets will need to be on high alert for leaks ahead of the release given that the decision is actually made several days in advance and the release process is unlikely to be watertight. Sterling overall is likely to weaken into the decision.
There is a strong probability that interest rates will be left on hold at 0.50% once again having been at this level for over six years . The statement is likely to make reference to the global economy with downside risks likely to be seen as a greater threat since the last meeting. There will be renewed concerns surrounding the Chinese outlook which will have a knock-on impact on UK demand. There will also be renewed downward pressure on inflation from the sharp decline in oil prices. There will be a partial counter from the recent sterling performance which has retreated to five-year lows against the dollar and has also fallen significantly from its best levels against the euro.
There will be expectations of slightly lower GDP growth overall and a downward adjustment to earnings growth is also likely with overall sentiment likely to be generally downbeat in the policy summary.
As far as the minutes are concerned, there will be speculation that McCafferty abandoned his call for higher rates given the shift in domestic and international trends over the past month. There is certainly little chance of anyone joining McCafferty given recent comments from the other MPC members considered generally hawkish. Weale made relatively dovish comments late in 2015 with reduced pressure for a short-term hike in rates. Forbes also stated in December that she would not support a rate increase with the current level of earnings growth.
The overall risks are therefore skewed to being Sterling negative. Developments surrounding the farce of EU negotiations will also be watched closely given the negative impact on sentiment and Sterling is likely to weaken into the decision.