The following are a selection of some of key points in UBS' preview for the BoE Quarterly Inflation Report on Thursday.
1- Certainly not all bad news on growth. Revised forecasts from the Bank of England in the February Inflation Report should show a still relatively upbeat growth outlook. Falls in the oil price and lower yields since the November Report are tailwinds for the consumer, though GDP revisions and some appreciation of sterling push in the opposite direction.
2- Big revisions on near-term inflation. The biggest change in the MPC's forecasts will come from much lower inflation projected for 2015. But it is not clear this should spill-over into lower two and three year ahead inflation views. If anything we expect the Bank may nudge its forecasts for those years higher, or put an upside skew on the distribution.
3- FX: NEER at new highs to test BoE tolerance. Governor would probably express some degree of disappointment that despite his warnings at the previous inflation report, sterling's nominal effective exchange rate has hit a new high. EURGBP was already under pressure and GBPUSD's recovery will likely add to current price headwinds. While we doubt the currency are at levels to warrant direct concern, escalation in rhetoric, especially in the context of greater risks of missing the inflation target, presents a risk to upside positioning heading into the report
