The Bank of England Quarterly Inflation Report is due at 0930GMT with Governor Mervyn King leading the usual press conference. The central forecasts in the Inflation Report are expected to be close to policy neutral, with analysts expecting the probability of inflation coming in above or below the 2.0% target being put at close to 50%. If the forecasts were, for example, to show inflation heading markedly below target it would leave open the question why policy was left on hold at the May MPC meeting. The read across from the central Inflation Report forecasts to monetary policy is far from straightforward, however. Extreme euro area risks are excluded from the central forecasts on the grounds these risks are unquantifiable but their intensification, or diminution, can influence policy so the press conference may well turn out to be more informative than the Inflation Report – but expect a nuanced approach from Mervyn King, who will not want to say anything to rule out more QE while having to justify the MPC’s decision to leave policy on hold in May.
EasyForexNews Research Team