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Daily Forecast: 9th Feb 2018
The Bank left interest rates unchanged at 0.5% yesterday, as expected, but the minutes said that policy “would need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period”. To a large degree, that reflected a change in policymakers’ intention to return inflation to target at a “more conventional horizon”, i.e. over around two years rather than allowing for a longer adjustment period of three years. The result from this was stronger Sterling exchange rates and markets are currently pricing around 70% probability of a May hike and fully pricing a rise by August 2018, while the pound has risen to around $1.40 and €1.14.
Main focus for UK data today will be January's GDP Estimate. Currency forecasts are for a drop of 0.1% which should mean Sterling will hold on to some of its gains made yesterday. Also due out at some point today will be an up-date on Brexit negotiations with early indications suggesting the EU's Barnier will make an official statement later today.
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