Bank of England

It’s “Super Thursday.”

This is the day when the Bank of England releases both the minutes of its Monetary Policy Committee and its inflation report.

The Bank will have one key question on its mind when it publishes at midday today – just where has all the inflation gone?

The BoE will more than likely hold rates at 0.5% for the 83rd consecutive month on an 8-1 vote from its MPC.

But markets will be more interested in analyzing the tone of Governor Mark Carney’s words on inflation for clues on when a rate rise might happen.

For the moment, the BoE is indicating that three big factors – a rock-bottom oil price, a slowdown in emerging market economies and weak wage growth – are holding inflation back, and keeping rates low.

How these topics will be treated in the final report, compared with remarks made last month, will give a sense of just how dire the BoE considers the low inflation situation environment to be.

Here’s the key quote from last month’s decision on interest rates:

Twelve-month CPI inflation rose to 0.1% in November and is likely to rise modestly further in the coming months as some of the large falls in energy and food prices a year earlier drop out of the annual comparison. But the 40% decline in dollar oil prices means that the increase in inflation is now expected to be slightly more gradual in the near term than forecast in the Committee’s November Inflation Report projections.

Here’s a quote from Barclays analysts on how it could go at midday:

We expect the minutes to be broadly in line with the January meeting, highlighting downside risks to inflation and global and domestic economic growth. If anything, we think the minutes could show some downside bias.

We expect downward revisions to CPI, global and domestic economic growth, as well as to wage growth. Further, given comments by Governor Carney and MPC member Forbes that the UK natural rate of unemployment may be lower than previously, we will look to see if this topic is explored and whether an assumption of a lower natural rate is considered in the modelling of the Bank’s forecasts.

All this has thrown a spanner in the works for Governor Mark Carney’s policy of forward guidance – an attempt to give traders, businesses and households a clearer picture of when they can expect an interest rate rise.

In the past, he’s hinted that 2016 could be the year in which the BoE raises rates for the first time since the financial crisis. But that looks increasingly unlikely.

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