The Bank of England will reveal later how it expects the UK economy to perform over the next two years. Its quarterly Inflation Report will present its latest predictions on both the country’s economic output going forward and the rate of inflation. It is also likely to give details of the future path of quantitative easing, its policy of injecting new money into the economy to stimulate growth.

Analysts will be looking for clues on the future direction of interest rates. Last week the Bank voted to keep interest rates on hold at 0.5%, but also decided to inject another £50bn of new money into the economy to help pull the country out of recession. This took the total spending under quantitative easing to £175m, unexpectedly going over the £150bn set aside by the chancellor.

In explaining the additional £50bn, the Bank said the UK recession “appears to have been deeper than previously thought. Recent official data showed that the UK economy contracted by 2.4% in the first quarter of 2009, more severe than the earlier estimate of a 1.9% fall. Meanwhile, inflation fell in June to 1.8%, below the Bank of England’s target of 2%.

In the U.S the conclusion of the Fed’s two-day meeting Wednesday is the big event of the day and could be positive for the dollar. The Fed will likely be cautious when it issues its statement but may upgrade its comments on the economy. It should also indicate its program to buy $300 billion in Treasurys will come to an end in September.

Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia: GaveKal:

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