| UK: PMIs consistent with zero growth in Q4 |
| 05.12.11 12:11 | |
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Growth broadly stagnant, MPC expected to hold this week The services PMI rose from 51.3 in October to 52.1 in November: above market expectations of a fall to 50.5. However, the detail was more downbeat than the headline PMI, with all of the activity indicators - employment, new business, outstanding business and business expectations - falling over the month. In a broader context though, the services PMI has been flat at around current levels since August - well below pre-crisis average levels of around 56. In November, the manufacturing and construction PMIs fell moderately over the month, while the services PMI rose slightly. Weighting them together with the CBI retail sales balance (since the PMIs do not cover the retail sector) suggests that - as in October - GDP was broadly flat over the month. So thus far, evidence from the PMIs is consistent with the BoE's expectations of GDP growth of zero in Q4 as a whole. Against that backdrop, the BoE is universally expected to leave interest rates and QE on hold at 0.5% and £275bn respectively later this week. While its November Inflation Report set out a clear rationale for QE being expanded further in due course, in our view recent comments/minutes suggest it plans on waiting until the current QE purchases finish in late January before considering expanding the scheme further. Their February meeting - and accompanying Inflation Report - would therefore be an opportune time to do so. The MPC has also noted that it is happy with the current pace of QE purchases: the minutes from the November meeting noted that a substantially faster pace might not be accommodated well by the market. So that could weigh against announcing more QE in December, as the latter could potentially necessitate a faster rate of purchases. Alternatively, a further expansion of QE in December would necessitate the BoE pre-committing itself even further in advance: another £75bn of QE would take it until nearly May 2012 to complete. The BoE could be reluctant to commit itself that far in advance at present, in our view, given the uncertainty surrounding the outlook. Finally, the BoE judges that its £75bn expansion of QE in October might be equivalent to around an 85bp rate cut, so it has only relatively recently loosened monetary policy substantially. source: Bank of America ML |
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