Author: By James Moore
It came as the Bank of England released the minutes of the most recent meeting of the Monetary Policy Committee, showing unanimous support of its members for the Bank’s decision not to extend the policy of “quantitative” easing ? known colloquially as printing money ? and to keep interest rates on hold. Quantitative easing is designed to stimulate the economy.
The CBI’s measure of orders dropped from -51 to -59, well below the expected figure of -45. Economists said that while these figures were worrying, the quarterly figures did not look as bad, and there was some hope with manufacturers indicating that the business environment improved over the past three months, with the balance rising to -16, the best since October 2007.
But, worryingly, the CBI said that despite price-cutting and the relative weakness of sterling, there was no pick-up in exports. The balance for export prices was -26 per cent, from -10 per cent last quarter, compared to a balance for domestic prices of -20 per cent, from -17 per cent.
Ian McCafferty, the CBI’s chief economic adviser, said:”These figures reinforce our view that the road out of recession will be long and slow. The further sharp decline in export orders is of particular concern as we are not seeing much of a boost from the relative weakness of sterling. There are also further indications that the inventory cycle may not be turning as quickly as many had hoped, with some manufacturers still having excess stocks of goods.”
The MPC minutes showed that its members saw inflation remaining nearer to its 2 per cent target than it had expected, together with a milder-than-expected economic contraction in the second quarter. “There had not been enough clear evidence that the £125bn target should be changed,” the minutes said.
The City had widely expected to see an extension to quantitative easing and forecasters were caught on the hop by the decision. Economists are now divided over what the MPC will do at its next meeting, when it will have the benefit of data from its quarterly Inflation Report.
Economists expect to see a fall in GDP of 0.3 per cent in the second quarter after an alarming 2.4 per cent slide in the first three months of the years. The official figures will be published on Friday. However, the MPC is still concerned about several aspects of the economy, not least the fact that banks are still not lending money to businesses.
George Buckley, chief UK economist at Deutsche Bank, said he believed the minutes signalled the end of QE. “There were too many references to the economic recovery in the MPC’s summing up to ignore ? especially given that most of them compared the current more positive outlook for the economy to that at the time of the last Inflation Report in May.”
However, Investec economist David Page took the opposing view, predicting that there will be more QE. “It will be very finely balanced but we still expect to see an extension of QE. The inflation expectation or projection will be markedly lower,” he said.
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