Positive data raises hopes for growth
A BATCH of better-than-expected economic data yesterday raised the chances that the UK economy could grow in the third quarter.
Coming ahead of the Bank of England’s Monetary Policy Committee (MPC) decision tomorrow, the CIPS/Markit services purchasing managers’ index (PMI) showed a rise to 53.2 in July from 51.6 and above consensus expectations of 51.8.
Economists are now more upbeat about the outlook for the economic recovery. Capital Economics’ Vicky Redwood said: “With the manufacturing and construction surveys already released also rising strongly, a weighted average of the three surveys is now just about consistent with rising GDP.”
Jamie Dannhauser at Lombard Street Research said: “We can be fairly confident of a rise in real GDP in the third quarter, with our composite-PMI measure hitting 52.4 last month. Output in both the manufacturing and service sectors appears to be on course to increase in third quarter.”
The positive manufacturing PMI earlier this week was supported by a 0.5 per cent rise in industrial production and a 0.4 per cent increase in manufacturing production in June in separate data from the Office for National Statistics.
While the clear signs of a rebound in activity will hearten the MPC, Dannhauser says: “It could be several years before the output gap is closed and deflationary risks abate. The MPC still has much work to do to ensure a robust and sustained recovery in the UK,” he adds.
Morning Wire’s shadow MPC has narrowly voted in favour of extending QE this month. Five members believe that the Bank should extend QE by £25bn to the full £150bn authorised. Of these five, three think the upper limit should be extended. But four members believe quantitative easing should be kept on hold for this month at least until more evidence clarifies the situation.