Mark Carney, governor, will unveil the Bank of England’s latest forecasts for the UK economy and give further guidance on the likely path of interest rate rises in London at 1030 GMT on Wednesday. Here are the key things to watch out for:

Inflation forecasts

Consumer inflation fell to 1.2 per cent in September, a hefty 0.5 percentage point lower than the BoE expected just three months ago. Coupled with that, falls in commodity prices and continuing deflation on the high street mean that near-term inflation projections could be revised down.

There is even a chance that the BoE will unveil a forecast showing that inflation could fall to 1 per cent or below – the trigger threshold that would oblige Mr Carney to write a letter to the Chancellor George Osborne explaining why inflation is so far below target.

While a short-term forecast downgrade might make headlines, the real policy action will be in the medium-term forecast. Here consensus expectations are not so clear.

Three months ago, the BoE was expecting inflation two years out to be 1.8 per cent. Alan Clarke, economist at Scotiabank, said that any downgrade on this would “reinforce expectations that the first rate hike is still a long way off.”

But Simon Wells, chief UK economist at HSBC, said he thought there was a chance that the medium-term forecasts might actually be pushed up in the light of looser monetary conditions. This would signal that a “long delay in tightening is not a done deal. In this sense we do not expect a resoundingly dovish report.”

Unemployment and wages

Despite the unemployment rate continuing to fall faster than predicted – indicating the labour market is tightening – the more dovish members of the MPC have continued to stress in recent speeches that they are looking for evidence that wage growth is starting to pick up before raising rates.

Further cuts to the unemployment forecast would not be a surprise, but the focus will be on predictions for wage growth.

Does the BoE think that wages will rise – a hawkish signal which would imply the time to raise rates is drawing closer? Or will the central bank redefine its view of how much spare capacity remains in the labour market, perhaps arguing that an increase in labour supply means the gap was bigger than first estimated? This would boost the case for keeping rates on hold for longer.

The path for growth

The BoE has consistently been among the most bullish forecasts when it comes to UK economic growth. At the time of the last report in August, the central bank was expecting the final reading of GDP data to rise by 3.5 per cent in 2014 and 3.1 per cent in 2015.

But after a run of slightly softer data, and increased concerns that the slowdown in the eurozone could impede the UK’s recovery, Paul Hollingsworth, economist at consultancy Capital Economics, said the BoE’s forecast now “look strong relative to the current consensus” of around 3 per cent in 2014.

The BoE might “shave a couple of percentage points” off its growth forecast, he said.


Analysts will be pouring through the details of the numbers in the report, but traders will also look closely at something a lot less precise: tone.

Less than five months ago, the market was fully pricing in the first rate rise to come in November, after Mr Carney said the first increase “could happen sooner than markets currently expect”.

Now, expectations have been pushed back to next August after a series of dovish comments from key MPC figures that rates could remain “lower for longer . . . without endangering the inflation target”.

Mr Carney’s language, perhaps even more than what is in the report itself, is likely to determine how the markets react.

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