(menafn – ecpulse) European focus on Wednesday will be on the United Kingdom. Investors are looking for policy clues from the BoE’s quarterly inflation report that is expected to highlight the outlook uncertainty alongside the jobs report that will attest the economic weakness.
U.K. emerged from three consecutive quarterly contractions in the third quarter this year with a surprise 1.0% expansion. The unexpected acceleration was attributed to the unwinding effect of the previous holidays and of course the London Olympics, but we still see that it might positively affect the BoE outlook in the Inflation Report.
The BoE is expected to slightly uplift their growth assessments but not strongly changed the expected growth outlook over the policy horizon as uncertainty remains evident. However, we can’t deny the possibility even that the BoE will be pessimistic over economic growth prospects especially with high uncertainty amid worsening debt crisis and the slowdown of the global recovery.
Inflation is expected to be stuck, the BoE is unlikely to alter their view on inflation and might even expect stubborn inflation rates that are slowly returning to target, especially after the surprise leap back higher in October according to ONS data on Tuesday.
CPI index rose to 2.7% in October higher than the prior figure of 2.1%, the volatility in prices keeps the BoE on hold, and the inflation outlook is critical for investors to determine whether the BoE will end the stimulus program or stay on hold for now after the expire of the APF extension last months.
Tuition fees increase pressured inflation to the upside last month alongside the lingering effect of higher commodities and the effect of taxes increase on general prices levels. The coalition government decided to raise sales tax to 20% in 2011 as the government have approved the biggest cuts in public spending since WWII in order to reduce the budget deficit in order to maintain its top credit rating and reduce the public debt burden which overshot the acceptable limit.
Austerity majors approved by the government keep negatively impacting growth levels, backing up BOEs’ tendency to reduce economy outlook. U.K. contracted for three consecutive quarters by the impact of the sharp decline in domestic spending and exports amid worsening sovereign debt crisis in the euro zone, U.Ks’ key partner.
The key is to pinpoint the policy direction from the BoE’s outlook over the policy horizon. The market needs to feel the tendency toward more QE if data continues to worsen and that will be confirmed if the inflation outlook remains to return to the target range and growth projections remain weak.
The data has shown signs of improvement lately but remains inconsistent and early to judge that the BoE will start to exit the expansionary monetary policy. The wait and see approach is now the dominant driver but any downbeat signals today will trigger expectations for more QE.
Meanwhile, the jobs market figures will be further support to help the market assess the outlook. The labor market have showed signs of improvement lately but the United Kingdome unemployment rate remains elevated at 7.9% as a consequence of the strict cuts in public spending and the weak private sector performance and expansion. The jobs change is expected to show unemployment dropped by 5 thousand last month following 4.8 thousand in September.
Manufacturing and non-manufacturing sectors are also experience fluctuations, which is clearly affecting the hiring pace and keeping the lid on high unemployment levels.
BOE stands in a very critical position due to the high uncertainty surrounding global growth and the unresolved European debt crisis, all that have promoted the central bank to focus on supporting growth.