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UK’s Services Growth Sheds Doubts on BoE Stimulus

Bank of England (BoE) policymakers meet today to decide on the interest rates and the need for further economic stimulus.

Worsening economic prospects could potentially make the Bank’s Monetary Policy Committee opt to inject a further 50 billion pounds of stimulus. Last month the BoE voted to pause its purchase of government bonds after pumping 325 billion pounds into the market through quantitative easing.

The official data from last week showed that the Britain’s economy contracted slightly more than first estimated and May’s manufacturing PMI reading dropped to a three-year low. However, the recent data indicates the steady growth of the UK service sector and recovering retail sales, which could reduce the chance the BoE will announce more economic stimulus at its meeting today.

Many economists expect the Bank to keep its policy intact. The Markit/CIPS purchasing managers’ services survey supported the view of somewhat positive economic prospects, with its headline activity index remaining unchanged at 53.3 in May.

Some analysts suggest that the BoE will choose to wait with any actions until after the Greek elections and will keep further stimulus in reserve in case markets are severely impacted as a result of the election’s outcome.

Source: Reuters [1]

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Kenny Fisher

Kenny Fisher [5]

Currency Analyst at Market Pulse [6]
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.