Worries about a sharp drop in the services PMI, will inject more caution into BoE language this month.

Economist do not dispute the Services PMI was an important negative surprise and that this, along with heightened external worries, needs to be reflected in the Bank of England's message. However, it needs to be considered in conjunction with an otherwise strong batch of recent domestic data. That end-of-year "sharper relief" were warned to expect for the rate judgment may now be more deserving of a softer focus, but economist  see the Bank as being unwilling to fully accept the prevailing market gloom and keen not to encourage it. Expect little air time to be given to rate-cut chatter, unless it is to downplay the possibility.

"As striking as the way the market has moved the first hike into 2017 is how slow the priced pace of hikes is thereafter. GBP 2s5s is priced to flatten over 12 months, converging with a EUR curve that is priced to steepen. We would oppose this convergence, expecting to pocket favorable roll-down on both sides. Given our view of the Bank's probablestance, we see the meeting as more likely to underpin sterling than to aggravate recent weakness",says BofA Merrill Lynch.