The chance of further quantitative easing later this week is “just below 50-50”, according to macro-economic research specialist Capital Economics, after two poor surveys put pressure on the UK recovery.
Chief UK economist Vicky Redwood says deterioration in the UK CIPS/Markit services survey during October and the most recent marketing survey suggest ‘green shoots’ may be fading.
The UK CIPS/Markit services survey saw headline business activity index drop from 52.2 to 50.6 in October, its lowest level since December 2010 and the largest monthly drop since April.
She says a weighted average of the two surveys is consistent with negative rates of quarterly growth for overall GDP.
Redwood adds: “The Monetary Policy Committee pays a lot of attention to this survey and this Thursday’s meeting now looks an even closer call than before.
“Given the stronger near-term outlook for inflation, we think that the chances of more QE this week are just below 50-50.
“But even if the committee holds fire this month, if the economic data continue in today’s vein, it is unlikely to pause for long.”
Last week, the CIPS/Markit report on manufacturing for October dropped from 48.1 to 47.5, signalling a further contraction in the sector, keeping it below the 50 mark that separates expansion from contraction for the sixth consecutive month.