Services sector wobble pressures Bank to up QE
Tuesday 06 March 2012
A February wobble for the UK's powerhouse services firms yesterday raised the chances that the Bank of England's rate-setters will be forced to print more cash to aid an uncertain recovery.
The sector – which accounts for around 75% of the economy – saw its slowest pace of growth since last November, according to the latest Chartered Institute of Purchasing & Supply/Markit activity index. It added that, though confident, firms are having to slash prices and barely hiring new staff.
Its index, where a score above 50 indicates growth, slowed from January's 11-month high of 56 to a worse-than-expected 53.8 last month. "The pressure to undercut the competition is acute," Cips' chief executive David Noble warned. Most services firms managed some growth although hotels and restaurants suffered a setback.
The Bank of England will mark three years of record low interest rates on Thursday, although it is expected to hold fire on further stimuli for the economy. But these latest signs of weaker growth strengthens the case of committee doves Adam Posen and David Miles for further quantitative easing. Deutsche Bank chief economist George Buckley said the survey "supports our view of a further £25 billion dose of QE come the May meeting". Despite the UK's sluggish performance, countries on the Continent are having an even harder time with unemployment at a high for the eurozone and rising inflation because of surging oil prices.
The region's dominant economy Germany held its ground, but in Italy and Spain the decline in services firms worsened. The worrying slide leaves the 17-member single currency bloc in danger of a technical recession after its economy shrank 0.3% in the final quarter of 2011.
Markit chief economist Chris Williamson called the latest survey a "major disappointment". He said: "The weakness of the sector risks driving the eurozone back into another recession."
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