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The focus for GBP this week will be the raft of BoE communication due for release on Thursday. This will include the November policy decision, minutes related to that meeting and the November Inflation Report. The Inflation Report will be held 45 minutes later, at 1245 London time.
The central bank is widely expected to leave policy settings unchanged, with Ian McCafferty likely to remain the sole dissenter, given his continued hawkish commentary since the October meeting.
Any changes are not expected, according to Barclays, to the Bank's economic forecasts. Instead, interest may centre on several topics the MPC noted would be explored further in the Inflation Report. These include:
- Whether "falls in risk-free interest rates reflected a monetary stimulus that would act to bolster growth in advanced economies, or whether the declines would merely act to offset the impact of a weaker global environment"
- The extent to which recent global developments signalled that global growth was weaker than previously assumed versus simply accentuating downside risks already prevalent
- The pace of exchange-rate pass through
- The effect of the downward revisions in business investment and the revisions to the composition of consumer spending.
Overall, the MPC continues to face the dilemma of a relatively resilient domestic economy in which inflationary pressures, while weak, may well be on a rising path and a weakening external environment that, via a strong exchange rate, is imparting considerable and persistent disinflationary/deflationary pressure on the economy.
With annual headline inflation non-existent and core annual inflation just 1.0%, a long way from the BoE's 2% target, the chance of BoE rate hikes in the near future is low.
October PMI data this week will also be watched. The manufacturing PMI is likely to decline to 51.2 from 51.5 in September, reflecting the recent decline in the CBI Industrial Trends survey, and services PMI to increase to 54.0 from 53.3 in September.
