LONDON (MNI) – The shockingly weak May manufacturing data published
Friday and the intensifying stresses in the euro area have led analysts
to put a markedly higher chance on more quantitative easing in the near
term.

In the wake of the May purchasing managers manufacturing data
economists at JP Morgan brought their forecast for more QE forwards to
July from August and they, and others, warned that if next Thursday’s
May services index shows a similar fall the BOE’s Monetary Policy
Committee could press the QE trigger at this month’s meeting.

The May purchasing managers index saw the second sharpest monthly
fall in its 20-year history, dropping well into contractionary territory
at 45.9, with the new orders index, a good indicator of future activity,
plunging.

George Buckley, chief UK economist at Deutsche Bank, said in a note
that “today’s PMI has increased dramatically the likelihood of the BOE
announcing more QE next Thursday.”

Malcolm Barr, head of UK Economic Research at JP Morgan, said that,
having expected a further Stg50 billion of QE in August, he has moved
that forecast forward to July following the manufacturing figures. If
the upcoming services purchasing managers index showed a “large enough”
decline, dropping to near the 50 level from April’s 53.3, the MPC could
move next week, Barr said.

Michael Saunders at Citi said further QE was likely and the next
tranche could come at next week’s MPC meeting, while Vicky Redwood,
chief UK economist at Capital Economics, is forecasting the committee
will sanction a further Stg50 billion in QE next week.

Redwood, however, says the June 6 and 7 meeting will be a close
call and it could end up with only a minority, of three or four
members, voting for more QE and with the unchanged policy camp winning a
narrowing victory.

Some MPC members, notably Executive Director Markets Paul Fisher
and Chief Economist Spencer Dale, have made crystal clear they will not
sanction more QE unless there is a serious deterioration in the economic
outlook.

The vast majority of economists in a Market News survey conducted
Thursday expected no more QE at next week’s meeting, but the
probabilities they attach to more QE are being raised fast.

–London newsroom 0044 20 7862 7491; email: drobinson@marketnews.com

[TOPICS: M$$BE$]