With full data now available, both my MPC-ometer and ECB-ometer models suggest rate cuts tomorrow of 50 basis points, though with risks tilted towards more.

Models can break down under extreme conditions. Markets are priced for a full-point UK move and 75 bp from the ECB. It would take a brave central bank to disappoint expectations under current circumstances.

At least in the UK’s case, however, the model’s suggestion that a 50 bp cut is sufficient appears sensible given the 200 bp move in the prior two months, a 7% decline in the effective exchange rate since the November meeting and massive fiscal loosening announced in the Pre-Budget Report (with plans for later tightening predicated on a highly-optimistic economic forecast).

A headline-grabbing big cut in Bank rate may give the impression that the MPC is “doing something” but efforts would be better focused on direct actions to boost money and credit growth, including “underfunding” and Bank of England purchases of private paper. In the US, the Fed’s initiatives in this direction are bearing fruit, with narrow money M1 picking up and the three-month LIBOR / OIS spread of 180 bp well below the UK level of 250 bp.