Bank's QE decision in doubt after stronger than expected services data
A remarkable bounce back for the UK's dominant services sector in January has left Bank of England policymakers facing a difficult decision next week over their monetary stimulus programme.
Analysts had expected the Bank's Monetary Policy Committee to announce next Thursday that it would buy more assets to boost the ailing economy. But yesterday's CIPS/Markit purchasing managers' index figures showed rapid growth in the services sector and made the decision over money printing much harder to call.
Some analysts now expect that with the UK economy looking healthier, the size of the increase in Quantitative Easing will be smaller. "Our forecast had anticipated extensions of QE by the MPC of £75bn both next week and at the meeting in May," said Malcolm Barr of JP Morgan. "With the January PMI data proving much firmer than expected, we are scaling these forecasts back to expect a £50bn extension at each meeting".
The PMI indicator – where a score over 50 signals growth – jumped from 54 to 56, the third successive month of improvement. Hotels, caterers, restaurants and gyms saw roaring trade as services firms – accounting for some three-quarters of the economy – enjoyed their fastest growth for 10 months. The impressive services data follows a stronger performance last month for the manufacturing and construction sectors.
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