Official figures last week showed Britain remained in recession in Q2, after the economy shrank by a shocking 0.7 percent. Nonetheless, the Monetary Policy Committee is likely to wait until November before pumping more stimuli into the ailing economy. By then, the latest £50 Billion round of quantitative easing will have been completed, and the committee will have had chance to consider the initial impact of the Government’s £80 Billion funding for lending scheme, which comes into effect within this week.
Bank of England policymakers are deemed to hold off on a further stimulus injection, despite figures that are expected to show the economy was still flat heading into Q3. The Bank’s Monetary Policy Committee is expected to leave interest rates on hold at 0.5 percent and quantitative easing unchanged at £375 Billion, even as Britain’s hard hit manufacturing and construction sectors suffer further setbacks amid a double-dip recession.
The Markit/CIPS manufacturing PMI tomorrow is expected to show that British manufacturing shrank for a third straight month in July, amid weak demand at home and abroad. Economists are forecasting a fall in the headline index to 48.4 points in July from 48.6 points in June, where anything below 50 signals contraction. The equivalent survey for construction a day later is also expected to show a sector in decline in July.
A separate report by an accountancy firm said construction insolvencies were likely to rise this year, as a combination of government spending cuts, the end of the Olympic boost and bad weather conspired to create a perfect storm in the sector.
Retail collapses rose 10.3 percent in Q2 as the wet weather exacerbated tough trading conditions. Meanwhile, other figures showed insolvencies rose to 426 between April and June, from 386 in the same quarter last year. High profile failures have included Clinton Cards and Game.
It was even reported that business confidence was falling amid a weak economy. Businesses are holding back on investing, still nervous about the future. Companies expect capital investments to grow by just 1 percent over the next 12 months in a worrying sign for the economy. However, the outlook for Britain’s service companies looks slightly better than some sectors. The Services PMI on Friday is forecasted to rise to 51.6 points in July from 51.3, signaling modest expansion. Bank of England data published yesterday showed a fall in mortgage lending and approvals in June, while Nationwide is likely to report tomorrow a 0.2 percent fall in house prices in July, suggesting that house prices were about 2 percent lower than a year earlier.
However, there is widespread hope that the ongoing Olympics will give the economy a boost in Q3, but economists have warned it is unlikely to be enough to prevent the British economy from shrinking in 2012 as a whole.
Written for AlgosysFx