-Victoria Clarke, economist at Investec
As today the Bank of England releases its Inflation Report, investors will compel their attention to the data to find indication concerning the timing of interest rate hike from the record low of 0.5%. November this year or February 2015 remain the most realistic guesses of economists with Britain's economic expansion hitting pre-recession levels after six years. Nevertheless, the economic recovery remains imbalanced with only the services sector back above its pre-recession peak. Analysts expect the central bank to cut its outlook for wage growth, after projecting in May that it would approach 2.5% by the end of the year, meaning the weaker the expectation, the less likely an early rate increase will occur. Inflation forecasts over the medium term could be revised slightly lower as well, as a stronger Pound makes imports costs cheaper. Also, any change in the central bank's forecast of spare capacity, which indicates that the economy is not growing to its full potential, will also be watched closely. In February's Inflation Report the BoE estimated the amount of spare capacity in the economy to be in the band of 1.0 to 1.5% of GDP. Carney has made it clear the optimal timing of a rate hike is before all the slack has been used up. If the latest forecast shows a considerable drop in the estimate to between 0.5% and 1% of GDP, economists are more likely to bet on a 2014 hike. Concerning the outlook for growth, with the nation's economy having been performing better than expected this year, major revisions are unlikely.
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