We remain comfortable with our view that interest rates will fall further this year as output remains below trend and inflation falls back below its target.
We still expect that the consumer slowdown will prompt more interest rate cuts,
While the stronger-than-expected rise in British GDP put a further dent in the prospects of an interest rate cut in February, we still expect the combination of sluggish growth and falling inflation this year to prompt a modest loosening of monetary policy.
It would have been better to have left the growth forecast unchanged, but that would have lowered the inflation forecast to below its target. They are having to work hard not to have to cut interest rates.
The stronger tone of recent data was clearly enough to prompt most members of the MPC to vote to keep interest rates on hold today, but we would not be surprised if the decision was rather closer than the markets seemed to think.
Interest rates are very likely to remain on hold for a seventh consecutive month in March, it being the only month in which the MPC has never changed rates in either direction since taking control in 1997.
Alongside the gathering momentum evident in the euro zone economy, the virtual confirmation of a hike in March supports our view that ECB interest rates will rise further than markets are anticipating.