Following the US Fed policy decision last night, today it is the turn of the Bank of England’s Monetary Policy Committee to deliver its latest interest rate decision. UK interest rate expectations have fluctuated a lot in recent weeks, with markets at one point discounting a rise of more than 150bp post the conclusion of today’s announcement. However, current expectations are lower and give a roughly equal weight to the possibility of a third successive 50bp move or a 75bp hike. Meanwhile, most economic forecasters are looking for a 75bp increase. There has also been much volatility in expectations of the peak in rates. Following the Kwarteng ‘mini-budget’ on the23^rd September, markets expected base rate to reach around 6% next year.

However, market expectations have since been scaled back to a peak of 4.75%. These fluctuations are at least partly due to recent changes in fiscal policy that were seen by at least some BoE officials as a reason for larger hikes. Yet, the subsequent policy reversals have likely removed much of that need.

Today’s policy update from the BoE is one of the occasions when it produces a new set of economic forecasts and will also been accompanied by a press conference from the Governor Andrew Bailey. While the delay in the fiscal statement may have provided difficulties, recent public announcements by the Chancellor still give substantial indications on the course of fiscal policy. Incorporating this and other recent developments may result in the Bank’s economic forecasts changing only relatively modestly compared to its previous projections in August. Inflation will be expected to end the year above 10% but be projected to fall sharply through next year. Downside risks to growth will also be stressed. Overall, however, the key message is likely to be that the environment remains particularly uncertain. Consequently, the BoE is likely to stress that further moves in interest rates remain ‘data dependent’.  

Ahead of that, the Norges Bank is forecast to announce another 50bp rise in interest rates, having delivered similar increases at its previous three meetings. However, a sizeable minority of the Bloomberg consensus of economists are predicting that the central bank will ease the pace of increase to a 25bp hike, suggesting that the risk of a rise smaller than 50bp are high. Data wise, the final reading of the UK services PMI is expected to be broadly unchanged around 47.5. Meanwhile in the US, the ISM services report for October is predicted to fall to 55.5 from 56.7 – but still consistent with solid activity. Elsewhere, a number of ECB speakers are scheduled.