Our MPC-ometer model forecasts a 5-4 vote for unchanged rates at this week’s meeting (four votes for a cut). This also appears to be the consensus view: 51 out of 63 economists polled by Reuters expect no change. By contrast, the respected Sunday Times Shadow MPC has voted 5-4 for a 25 bp cut. (Like the MPC-ometer, the Shadow MPC correctly forecast the December reduction.)

The key factors holding the model back from forecasting a January cut are high household and business inflation expectations and the recent sharp drop in the effective exchange rate. It also takes into account the tendency for the MPC to prefer to move in Inflation Report months. Weakness in activity indicators has not been sufficient to outweigh these factors.

Assuming a 5-4 unchanged vote this month, the model suggests a high probability of a cut in February. There is clearly a chance that the Committee will choose to act early, as it did in January last year. However, with LIBOR spreads and sterling falling, financial conditions have eased significantly since its last meeting, giving it scope to wait for further information before acting again. I think that would be the right decision given troubling near-term inflation prospects.