As I pointed out on the 23rd May, the minutes of the last Bank of England’s (BOE) Monetary Policy Committee (MPC) meeting showed they had their collective ‘finger on the trigger’ to introduce more Quantitative Easing. Since then we have seen reasonable unemployment figures, the BOE May Quarterly Inflation Report – which if anything erred on the side of concerns over growth – a nice decrease in headline CPI, pretty disastrous retail sales figures, a -0.3% reading for Q1 GDP, and an horrendous Manufacturing PMI.
But most importantly, we have seen a frightening intensification of concerns over the Eurozone debt crisis, with the threat of a Europe-wide bank run becoming a real possibility. Finally, to complete the gloomy picture, readings from the US and Chinese economies havebeen tepid at best.
Little downside in waiting
Faced with all of the above, one might think it’s virtually certain that the MPC will vote for further stimulus, a conviction that might be reinforced by the fact that Adam Posen, who misguidedly abandoned his dovish stance at the April meeting, has since admitted this may have been a mistake.
The argument for waiting another month is that the Eurozone debt crisis has the potential to take another lurch down if Greek elections mid-June imply an impending attempt to renegotiate the terms of Greece’s bail-out and the EU summit on 28th June just comes out with the normal mixture of platitudes, pretend-and-extend liquidity, and clever financial engineering.
It will be a finely balanced decision, but I stick by my prediction that we will see nothing today, with £50bn more in Quantitative Easing announced in July.
Nick Beecroft ,
SAXO BANK