The survey case for more Quantitative Easing
When the Office for National Statistics reported that the UK economy had double dipped into recession last month, many City analysts said that it couldn’t be true because the PMI industry surveys had been so strong.
But they’re not looking so robust now. In April the readings for services, and construction and manufacturing remained in positive territory, signalling growth, but they also all fell. The composite index has now slipped to 53.
And Chris Williamson of Markit has produced an interesting chart showing that, in the past, when the composite of the three sectors has gone to 53 or below the Bank of England has often cut interest rates:
Obviously with rates locked at record lows of 0.5 per cent, there’s not really room for further rate cuts. But the Bank of England could have pushed the button for more QE today. It didn’t, despite the double dip, leaving its asset purchase scheme at £325bn.
In the minutes of its meeting last month the Bank’s Monetary Policy Committee hinted that it didn’t believe the ONS’s figures. And one of the reasons it cited, echoing the City analysis, was that the PMIs have been strong.
The MPC must have had the new PMI figures spread out on the table during its meeting this week. It’s going to be interesting to see how the committee explains why it didn’t act this month on the very figures that it saw as extremely important four weeks ago.
Perhaps it’s because the outlook for the eurozone is suddenly looking so much rosier!Tagged in: asset purchases, construction, manufacturing, pmi, quantitative easing, services, surveys
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