QE or not QE? Spotlight on the ECB as inflation dips

ECB is expected to leave key rates unchanged and wait for next year to decide whether to take the leap to govt bond-buying

The ECB's monthly rate meeting will focus minds this week on the debate over quantitative easing in the euro zone, as a series of data releases on both sides of the Atlantic sheds more light on European woes and US strength.

Final purchasing manager indices for Europe and the United States, US monthly jobs data and the European Central Bank's updated forecasts will all provide clues to assessing the relative health of both regions.

The ECB staff inflation and growth estimates for the 18-nation single currency union are much awaited after data showed on Friday that inflation in the bloc was back to a five-year low, putting more pressure on the bank to take action.

Particular attention will be paid to internal debate within the ECB over quantitative easing and to ECB chief Mario Draghi's comments on the data at his monthly news conference on Thursday, after his pledge to act to lift "excessively low" inflation.

The ECB is expected to leave key rates unchanged and wait for next year to decide whether to take the leap to government bond-buying.

A decision on QE may come as early as the first quarter, Vice President Vitor Constancio said last week. But arch-hawk German ECB policymaker Jens Weidmann responded that there were "legal limits" on printing money to buy government bonds.

"The ECB's communication has not always been crystal clear this year, but overall it has moved steadily towards a more dovish stance despite internal tensions within the Governing Council," French bank Credit Agricole wrote in a note. "We expect no sovereign QE announcement at the December 4 meeting but a more formal, albeit conditional commitment to broader asset purchases."

Friday's monthly U.S. job figures will be the key data in the United States. Non-farm payrolls are expected to show an increase of 228,000 in November, according to a Reuters poll.

The unemployment rate fell to a six-year low in October, underscoring the economy's resilience in the face of slowing global demand. Wage growth remained tepid, though, suggesting little need for the Federal Reserve to hurry to start lifting interest rates.

On Thursday, the Bank of England looks set to keep interest rates on hold at a record low 0.5 per cent - that's the unanimous expectation of analysts polled by Reuters. The day before that, Finance Minister George Osborne will deliver his Autumn budget update to parliament.

The first hike in British interest rates is expected to come in the third quarter of 2015, six months later than previously thought, owing to low inflation, sluggish pay growth and a weak euro zone economy, a Reuters poll showed.

Final purchasing managers indices are published after flash estimates came in lower than expected for the euro zone.