Markets fall back ahead of Bank of England interest rate decision

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It’s another nervous day on Europe’s trading floors. Shares are expected to fall back, unravelling Wednesday’s recovery, as the wild swings that have dominated this week continue.

Wall Street suffered a late wobble last night, with the Dow Jones surrendering all its gains to close slightly lower (down 19 points). That’s going to feed through to the City, where the FTSE 100 is being called down around 0.6%.

(@Accendo_Mike)

FTSE 100 Index called to open -50pts at 7230 pic.twitter.com/EPmmuyBlaE

February 8, 2018

Worries over rising inflation and bond yields continue to drive the markets, with traders wondering how fast central banks will tighten monetary policy. That means the Bank of England will be centre stage today.

The BoE will set interest rates at noon today, and also release its latest quarterly inflation report — packed with new economic forecasts.

One or two policymakers may vote for a rate hike — but the majority will almost certainly vote to leave rates at 0.5%.

The big question is whether the BoE is inching closer to raising borrowing costs in May.

Michael Hewson of CMC Markets says governor Mark Carney will face plenty of questions about the UK economic outlook:

Today’s interest rate decision isn’t expected to offer too many surprises on the rates front, the main steer for the next move in the pound will come from Governor Carney’s assessment of the UK economy, which he has already stated is suffering from under investment as a result of the uncertainty being generated by the Brexit talks.

Markets will also be looking for any further steers on the outlook for wages growth, as well as productivity which has also started to show signs of improving.

It will be in the area of wages that markets could well focus most of their attention, particularly in light of last week’s strong US wages numbers, which has made bond markets globally particularly susceptible to how policy makers view the outlook for them.

Several other central bankers are speaking today, which should keep the markets on their toes.

The agenda

10.30am GMT: ECB executive board member Yves Mersch speech on Digital Currency.

Noon GMT: Bank of England interest rate decision

12.30pm GMT: Bank of England press conference

1pm GMT: Federal Reserve Bank of Philadelphia president Patrick Harker speaks on “The Economy: Output and Impact for Colleges and Universities”

1.30pm GMT: The US weekly jobless figures

All day: EU Commissioner Pierre Moscovici visiting Greece