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Week Ahead (1 February)

W/C Monday, 1 February - Talks on formation of new Italian government

Additional consultations on government formation got underway this morning with the group leaders of PD, M5S, LeU and Italia Viva looking to finalise a programme for government by the end of today. While Renzi and Conte remain hostile towards each other, Renzi’s support for a Conte led administration should not be ruled out if Renzi can extract significant concessions including additional resources for healthcare and education, reform to the statute of limitations and likely, at a minimum, a cabinet reshuffle involving the replacement of Bonafede as Justice Minister.

Mattarella may decide that the parliamentary arithmetic simply does not favour Conte’s return and push instead for a government of national unity – the price for which would likely involve a different Prime Minister. To that end, the coming 48 hours will likely be decisive for Conte.

Tuesday, 2 February - Eurostat flash estimates for Eurozone GDP to be released

Eurostat will release flash estimates for Eurozone GDP in Q4 2020 on Tuesday. Q3 2020 saw the Eurozone economy rebound strongly from the initial phase of the pandemic, with seasonally-adjusted growth of 12.5% recorded in December's release. The results represented a decrease of 4.3% year on year, but were a significant jump on the -14.7% recorded in the previous quarter. This week's results will not be so encouraging, as they will show the effects of the reimposition of lockdowns and subsequent economic damage across the bloc in Q4.

Wednesday, 3 February - HICP inflation flash estimate to be released

Flash HICP inflation data for January will be released on Wednesday. The Eurostat release on inflation for December was released on 20 January and showed that Eurozone inflation remained stable at -0.3% for the fourth month in succession. In December 2020 Eurozone inflation stood at 1.3%. EU inflation as a whole increased to 0.3% from 0.2% in November, compared to a December 2020 rate of 1.6%.

Thursday, 4 February - Bank of England Monetary Policy Committee to meet

The Bank of England's Monetary Policy Committee is set to meet on Thursday. In advance of the meeting one of the members of the committee, Silvana Tenreyro, has called for interest rates to be cut to below 0% for the first time. In an address to the University of the West of England, Tenreyro argued that the application of negative interest rates had worked in other countries and that it would not lead to a loss in profits for British banks. The BoE interest rate has been hovering just above zero since the start of the Covid-19 pandemic in March 2020.

The Bank of England is known to be studying the technical feasibility of negative rates for Britain's banking system, but the results of its study are not expected to be released until after next week's meeting. Members of the Monetary Policy Board are known to be split on the prospect of negative interest rates. On 20 January Andrew Bailey, the Governor of the Bank of England, noted that such a move would change the "whole calculus of how the banking system works", and that it was impossible to "now, with any confidence, how that would work." Others have said that it would be prudent to have negative interest rates "in the toolbox", without committing to using it.

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