European Central Bank and Bank of England meetings today

European Central Bank preview via:

Barclays:

  • After the decisions announced in October to extend QE until September 2018 at a reduced pace of €30bn per month, we do not expect any change in monetary policy nor in the forward guidance at the December meeting.
  • The ECB will unveil its new macroeconomic projections and extend them until 2020; during the Q&A, President Draghi will likely be questioned about the dissenting views expressed at the October meeting as reflected in the minutes.

HSBC:

  • With most key policy decisions for the near term taken in October, the ECB's December meeting is likely to be a low-key affair. But it could start setting the tone for an eventual exit from QE.
  • From the minutes of the October meeting, we learnt that there was 'broad' agreement for the 9-month QE extension that was announced. Mr Draghi has said repeatedly that QE will not end suddenly. However, some concerns were raised that market expectations of further net purchases beyond September 2018 may not be justified.
  • Updated ECB staff forecasts will also be published at this meeting. We believe the recent oil price increase will likely push up the 2018 inflation forecast by 0.3pp to 1.5%. A 2020 inflation forecast will be published for the first time - we expect it to come out at 1.8%, close to the ECB's mandate of 'below, but close to, 2%' inflation. We don't see major changes to the growth forecasts

Bank of England preview via the same two ...

Barclays:

  • Following the November hike, the first rate hike in a decade, the MPC are likely to unanimously vote for unchanged policy at its December meeting. Communication has consistently indicated a very gradual hiking cycle over the next 2-3 years.

HSBC:

  • After raising rates for the first time in a decade in November (by 25bps to 0.5%), we expect the Bank of England to take a pause for now. We think the committee will vote unanimously (9-0) to keep rates on hold at 0.5% and asset purchases unchanged at GBP435bn.
  • The MPC may try to deliver a slightly hawkish message, however. We think the market's interpretation of the November rise was overly dovish, and, although it has re-assessed since then, this was largely on the back of the apparent progress in Brexit talks, not a change in its perception of the Bank's reaction function.
  • That said, there remain plenty of reasons for caution: the data since November have been broadly weaker and the outlook for a Brexit deal remains fraught with risks. Although the picture may be clearer when the MPC meets and votes on 13 December, the final confirmation of the EU Commission's decision will not yet have come through.
  • So the MPC will want to strike a balance in its communications. Still, we think it wants do more than just 'one and done'. We forecast a second rate rise in May 2018.