Very brief previews of the European Central Bank decisions due Thursday (26 October 2017) and Bank of England due the following Thursday (2 November)

Contained in the MS outlook for the main factors to watch ...

This week in the euro area:

  • The ECB meeting ... We have slightly amended our call and now expect the central bank to announce that the APP will be extended up to September 2018, or beyond if necessary. But, from January onwards, the pace of purchases will likely be lowered to €30bn per month.
  • The process of suspension of Catalonia's autonomy will remain in focus.
  • Discussions on Italy's new electoral law could also grab market attention.
  • Datawise, the euro area's composite PMI and the German Ifo likely declined somewhat, though remaining strong at the start of 4Q.

And, for the UK:

  • In the final build-up to the MPC's meeting on November 2nd, we will be alert to MPC commentary.
  • Preliminary 3Q GDP is a key data release. Anything weaker than 0.3%Q (our forecast and also the figure expected by the BoE at the time of the BoE's August Inflation Report) would lower the probability of a rate rise in November, by looking consistent with increasing rather than stable or shrinking spare capacity.

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ps. MS include a look back at the week that was ...

Euro Area:

  • The situation in Catalonia grabbed the headlines, as the Catalan government's decision not to backtrack led the Spanish government to take extra steps to suspend its autonomy. On the data front, the German ZEW came in slightly weaker than expected, but still posted a small gain.

UK:

  • The EU-27 agreed conditions had not been met to allow the Brexit negotiations to move to the 2nd phase (we still expect this to happen in December). But they agreed to start internal preparatory discussions on guidelines for that phase.
  • Comments from MPC member Ramsden suggest he's unlikely to vote for a November rate rise. However, with inflation at 3%Y and a below equilibrium unemployment rate, we still expect the MPC to raise rates. Weak retail sales, subdued pay growth and slower employment gains were reminders, however, that a November rate rise is not a 'done deal'.