Overview & economic commentary

The publication of the Bank of England’s Inflation Report this week will provide further details about the MPC’s thinking behind the surprise
1.5% cut in Bank rate last week. The latest economic projections in particular, highlighting prospects for growth and inflation, will be analysed
for clues about the likelihood and timing of further rate reductions. However, given the extent of the cut last week, we confidently expect the
QIR to show inflation below target based on the prevailing market implied interest rates used in the analysis, so comments from BoE governor
King at the press conference should be more informative as to whether current predictions are realistic. Financial markets predict a further
reduction of 1% in Bank rate to 2% by Q1 2009. The latest UK labour market figures will also draw strong interest this week. Data this week
are also expected to show that euro zone gdp contracted in Q3, confirming the region’s first technical recession. While we look for only a
modest fall of 0.1%, the risk is skewed to the downside. ECB speakers this week will be listened to closely for any clues about the next move
in interest rates. In the US, it is a quiet start to the week for economic data, however the Treasury will be busy auctioning $55bn of new
government debt. The first official retail sales data for Q4 are due on Friday, with a modest rise forecast in October after three straight months
of declines. The latest barometer of US consumer confidence, published by the University of Michigan on Friday, closes the week.

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