Sean O'Grady: MPC's moment to make a dramatic intervention


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"If it were done when 'tis done, then 'twere well it were done quickly." Macbeth might have made for an interesting external appointment to the Bank of England's Monetary Policy Committee (MPC), if only for his sense of timing. Probably not quite as back stabbing as some as well.

Anyway, monetary policy has many and variable leads and lags, but one thing we do know is that it is better to preempt matters than act too late. Which is why the recent run of weak economic data is so important. Take the most substantive – the official preliminary estimates for growth in the second quarter. Even if the underlying rate is taken at 0.7 per cent rather than the headline 0.2 per cent – making full allowance for the tsunami, royal wedding et al – it is still feeble.

All the surveys and output data from the manufacturing sector suggest its revival has run out of steam. Service data out today will be critical. Businesses and consumer sentiment is weak. Confidence is in very short supply and firms are unwilling to invest or hire. The risks from the US, eurozone and even nascent Japanese debt crises are well known. Policy tightening in China is another factor. Fiscal policy remains on a sharply contractionary path, and the cuts have barely begun. The negatives are all there.

While not as dramatic as September 2008, when everything around the world "fell off a cliff", the current mood has something of the same feel in its mix of political and economic jitters.

In that context the case for QE is strong. As for timing, the Bank has a full Inflation Report press conference next week in which to explain its policy. It might surprise the markets a bit, but no one would faint at another £50bn. It would look bizarre to some, before CPI peaks at 5 per cent this autumn, but that is not a reason for not doing it; that is a reason for making a good case. The MPC would have to be brave. But, as Shakespeare's tragic hero put it: "Screw your courage to the sticking-place, and we'll not fail."