PRESSURE is mounting on the Bank of England’s Monetary Policy Committee (MPC) to consider another round of emergency Quantitative Easing (QE – printing money) at its Thursday meeting, as the UK and eurozone crises mount.
Bourgeois analysts believe that the MPC could add a further £50bn to the current £325bn of quantitative easing (QE) if new figures show the UK’s service sector has contracted in the wake of the manufacturing slump.
Howard Archer, chief UK economist at IHS Global Insight, said: ‘There is a very real and mounting pressure on the MPC to revive QE, and sooner rather than later.’
The MPC decided not to extend QE at its May meeting because of concerns over rising consumer prices.
Now, however, it is believed the MPC could even cut interest rates below 0.5 per cent after IMF chief Christine Lagarde called on the Bank to lower rates further to help the UK weather the eurozone debt crisis.
Philip Shaw, chief economist at Investec, said the manufacturing slump may have unnerved the MPC but it was not ‘a game changer’. He warned that a slump in the services sector, which makes up some three-quarters of the UK economy, would be ‘a different story’.
Barclays Capital analyst Simon Hayes agreed, saying: ‘If the services sector PMI (Markit/CPS Purchasing Managers Index) published on Thursday morning were to show a similarly precipitous fall, the MPC is likely to give serious consideration to a QE expansion.’
The UK’s money-printing and interest-rate jitters came after Saturday’s call by Spain for a new fiscal eurozone authority which would police national budgets and manage the bloc’s debts.
Prime Minister Mariano Rajoy said: ‘The European Union needs to reinforce its architecture. This entails moving towards more integration, transferring more sovereignty, especially in the fiscal field.’
He claimed such an authority would go a long way in alleviating Spain’s woes as it would send a clear signal to investors that the single currency is an irreversible project.
Spain’s borrowing costs have soared to record highs and pushed the country closer to seeking an international bailout.
The prospect of a Greek euro exit and a Spanish financial disaster has prompted more EU policymakers to hurriedly consider measures such as a ‘banking union’.
Germany has said further integration in Europe is required, including additional controls on national public finances, and is ready to consider revising the treaties if needed.
Chancellor Merkel said that it should be possible for countries that violate fiscal rules to be sued in the European Court of Justice.
She insisted: ‘You can’t ask for euro bonds, but then not be prepared to take the next step towards closer integration. We won’t be able to create a successful currency together this way.’