FXstreet.com (Barcelona) - The Bank of England as well as the European Central Bank will make public today their respective monthly monetary policy decisions, in a global context of economic uncertainty derived from the turmoil in financial markets. While the consensus on the ECB side is mostly for a continuation of the Bank's wait and see policy, a second consecutive rate cut by the BoE should not be discarded.
The Bank of England did cut its key interest rate in December to 5.5% from the 5.75% level for the first time in more than two years, however, it did not show a substantial improvement for British economy which seems to be cooling off in the latest months.
British retailers have seen their sales shrink sharply in December to their lowest level since 2004, housing prices are falling, according to most surveys, and inflation risks are on the upside due to fast rising costs of oil and food, although, at the moment yearly inflation remains at 2.1% slightly above the 2.0% upper limit of the BoE's margin or price stability.
The European Central Bank faces a quite different scenario, with inflation running at 3.1%, well above the 2.0% upper boundary of the price stability margin, the ECB's president has recognised voices for a rate hike amid the Monetary Policy Committee in the latest meeting, as anchoring inflation is considered one of the most important tasks of the Bank.
A rate hike, does not seem very likely, taking in account the European currency's strong position against the Dollar, a further strengthening for the Euro could have negative consequences for European industry, this, and the persistent turnmoil, in credit markets seem reasons strong enough to keep the Bank away from higher interest rates.