MPC decision tomorrow: and the likely call?

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Tomorrow the Bank of England's Monetary Policy Committee will announce its first decision of 2012.

Although CPI inflation currently stands at 4.8% it is highly likely to fall below target in the latter half of 2012. A rate rise now seems firmly off the table.

In fact, in many ways, a boost to the asset purchase program (a.k.a. QE) now seems increasingly likely. The ongoing Eurozone crisis is affecting the real economy. Not only have export orders looked weaker in recent months, but the uncertainty generated by the crisis has led to some companies holding off on investments. More recently there are signs that the crisis is putting strains on the banking sector, both at home and in the Eurozone, which could cause further problems with access to finance.

That said, it is unlikely that the Bank will chose to increase asset purchases tomorrow, not least because the current round of purchases is not yet complete. If a decision is made to loosen policy further it is more likely to come in February, following the Bank's Inflation Report which will contain its next round of forecasts. We'll also have a bit more data around how the last few months of 2011 looked.

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