Europe Ahead: BoE minutes to show split among MPC members

Today, the main highlight will be on the BoE minutes for January's
rate decision in the absence of data from United Kingdom and euro
zone, where expectations refer the continuation of the split among MPC
members.

In December, Andrew Sentance positioned lowering inflation through
raising interest rate to 0.75% while Adam Posen called for £50.0
billion increase in the APF to £250 billion and voted for steady
rates at 0.5% to prop up recovery.

Still, the trade off between inflation and growth is the main criteria
causing split among members as some believes boosting growth is higher
priority than lowering inflation while others deem the opposite is
true.

However, after the data released recently the challenge is going to
be bigger as fourth quarter GDP recorded 0.5% contraction after the
0.7% expansion in the third quarter while annual CPI climbed to 3.7%
in December, adding inflationary pressures on the economy.

In January, policy makers refrained from changing their monetary
policy through keeping both interest rate and APF amount unchanged,
and they may keep them steady till the release of February's inflation
report that will include update to growth and inflation outlook.
The British economy starts the year with jitters due to the presence
of double jeopardy represented in suffering from hyperinflation and
coming back to recession.

The CERB mentioned this month that BoE may be forced to add to the
current APF because the announced spending cuts and rise in VAT will
affect growth prospects, and it expected inflation to average 4.0%
this year.

David Blanchflower criticized previously the government's severe
spending-cut plan and said it would shave growth and may return the
country back to recession.

It seems that Blanchflower warnings are becoming true and the
situation may worsen with the adoption of austerity measures.
George Osborne, Chancellor of the Exchequer, announced government's
intended spending cuts over the coming four fiscal years to trim the
huge deficit that reached 11% of GDP in 2009 to be completely
eliminated by 2014-2015.

The government will embark on severe spending cuts that aim to slash
the deficit by 2% and expected to shave 490,000 public-sector job
losses in addition to welfare cuts, and the VAT rise to 20.0% from
17.5% last year which will also affect growth prospects.
Source: Fxstreet.com