Expect 'radical changes' from the Bank of England

Andrew Holt | Digital Vision | Andrew Holt

The Bank of England's (BoE) rate decision on Thursday marks the start of a key week in the tenure of new governor Mark Carney with some analysts expecting "radical changes."

The U.K.'s central bank is expected to keep its main interest rate at 0.5 percent on Thursday, according to a Reuters poll, and only one investment bank - Investec – believes it will add to its current £375 billion ($574 billion) quantitative easing (QE) program.

But analysts are not taking anything for granted. At its last rate decision on July 4, the BoE, nicknamed the Old Lady of Threadneedle Street, released a surprise statement about future policy on what was Mark Carney's fourth day at the helm.

(Read More: 'Semi-rude' Draghi, 'jump the gun' Carney criticized)

The minutes of Carney's first policy meeting also revealed that the Monetary Policy Committee (MPC) had voted unanimously against further money stimulus, following months of disagreement over the issue.

"The MPC under Mr Carney has so far been more communicative and the unanimity in July was unexpected. This has led to speculation about another surprise," Simon Wells, chief U.K. economist at HSBC, said in a research note.

UK in limbo

Despite the excitement of the last policy meeting, analysts do not anticipate fireworks this Thursday. Instead, the BoE is expected to reveal the full details of its future policy - and how it could be tied to growth or employment figures – on August 7, along with the inflation report.

(Read More: Bank of England unites against QE under Carney)

Bank of America Merrill Lynch indicated that the U.K. will effectively be in "limbo" until the inflation report is released, while Societe General said it expects the Old Lady to "wake up" and make "radical changes". The French bank expects "monetary activism" to be put in place next week in the form of forward guidance, highlighting that the obvious candidate for a threshold would be the unemployment rate which is currently used by the Federal Reserve.

"More explicit guidance is coming to the U.K.," HSBC's Wells said, adding that he believes future interest rates will be linked to a threshold based on a gross domestic product (GDP) figure that has not been adjusted for inflation.

"A good threshold should be timely, widely understood, easy to measure and related to the U.K.'s economic situation. Unfortunately nothing ticks all these boxes in the U.K.," he said. "We think the MPC's aim will be to signal that policy rates will stay at 0.5 percent until 2016 unless the recovery gains strength."

Sterling to plunge?

Carney's dovish tone earlier this month led to a sharp weakening of the pound against the dollar, and analysts warned of a rocky week ahead for sterling, with the latest July manufacturing PMI (Purchasing Manager's Index) reading also due on Thursday.

(Read More: Carney shows markets who's boss; sterling falls)

Kathleen Brooks, research director of Forex.com, said she did not expect the BoE to announce any policy changes on Thursday, but added: "If the BoE does release a statement with its policy decision this week - and mentions the term forward guidance - the pound could see a sell-off."

David Bloom, global head of foreign exchange strategy at HSBC, said sterling is overpriced, and should be trading below the 1.50 level after Carney broke the link between the U.S. interest rate expectations and those in the U.K. with his forward guidance. Sterling was at 1.5237 against on the dollar on Wednesday morning.

"Anything dovish and GBP will have to play serious catch up," he said in a research note on Monday. "Anything hawkish and GBP is already ahead of the game. On balance we think Cable [sterling versus the dollar] is too high."

By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81.