Today is BoE's "Super Thursday". What to expect?

The Bank of England held rates unchanged at record low levels of 0.5 per cent for more than six years now. Markets broadly expect the BoE to hold rates steady when it meets tomorrow. BoE chief economist Andy Haldane had said in September that negative rates may still be needed in the coming months. Governor Carney had after the December’s rate decision meeting clarified that the central bank will move when the time is right. Considering these statements, it can be concluded that the BoE will likely raise its rates only in January or February 2017.

The rate decision meeting in the previous months saw just one of the nine Monetary Policy Committee members vote in favour of a rate hike. The scenario may stay unchanged tomorrow. The vote to hold rates will likely remain 8-1. Ian McCafferty can be expected to remain the lone hawk. Some analysts however feel McCafferty may choose to change his stance at tomorrow’s meeting. Economists Fabrice Montagne and Andrzej Szczepaniak feel there is a possibility of Ian McCafferty withdrawing his vote to raise rates on account of recent fall in oil prices as well as the dominant market volatility. He had chosen to refrain from voting in favour of a rate hike in January 2015 post the sharp in oil price in the December of 2014.

What will likely prompt the BoE to hold rates steady tomorrow?
It might be worthwhile to study the factors that are weighing on the central bank’s inclination to hike. Broadly, it is larger global economic outlook as well as the poor growth at home which is postponing the increase of rate further into the future. The central bank has revised downward Britain's growth outlook to 2.7 per cent for 2015. Inflation is a prime concern for policy makers. CPI remained almost flat in November. Latest figures show wage growth slowed to 2.4 per cent in the three months to October from 3 per cent recorded earlier. It grew at a slowest pace since early 2015 in this period. Only higher wages can lift consumer spending and help to stabilize price. The weaker outlook for inflation together with the slowdown in wages will likely compel the central bank to postpone rate hike to the end of 2016 or even beginning of 2017.

The manufacturing sector has also shown sharp decline in growth in the last quarters, weighed down by poor global outlook. Manufacturing production contracted 0.4 per cent month on month in November.

The BoE will also have to consider the fears arising over a Brexit possibility before arising on rate decision. Brexit fears are hurting business sentiment in the UK and the central bank’s miscalculated step may chase investors away.