Belfast Telegraph

Friday 11 July 2014

Emergency cash print move is on if economy fails to fire

The Bank of England will seriously consider another dose of emergency money printing on Thursday if evidence emerges of a further deterioration in the economy.

Its Monetary Policy Committee (MPC) is widely expected to leave interest rates at their record low of 0.5% and the stock of quantitative easing at £325bn.

However, if a closely-watched survey of the important services sector released hours before members make their decision shows a contraction, it could prompt the Bank to fire up its money printing presses again.

A contraction of the services sector would add weight to fears that the economy is deteriorating after the manufacturing sector suffered a shock contraction in the second biggest decline in the 20-year history of the Markit/CIPS survey.

Philip Shaw, chief economist at Investec, believes the manufacturing decline may have unnerved the MPC, but it was not "a game changer", whereas a similar trend in the services sector would be "a different story".

Simon Hayes, an analyst at Barclays Capital, said: "If the services sector PMI published on Thursday morning were to show a similarly precipitous fall, the MPC is likely to give serious consideration to a QE expansion."

However, the City only expects the Markit data for the services sector on Thursday to show a slow-down in growth rather than a contraction.

Mr Hayes does not believe such a performance would be enough to press the Bank into more action. He does not expect more QE until August when he predicts a £50bn injection.

Pressure on the Bank to implement more stimulus measures has been mounting in recent weeks after official figures showed the UK's double-dip recession was deeper than previously thought with a 0.3% fall in the first quarter of 2012.

0.5%

The record low interest rate, which is expected to be kept by the Bank

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