Slowing service sector boosts chance of QE3
BRITAIN’S all-important services sector expanded solidly last month, according to data published yesterday, although the pace of growth was slower than in March.
Economists said slowing demand may renew calls for more quantitative easing (QE) from the Bank of England, as Markit’s purchasing managers’ index for the sector came in at 53.3, down from 55.3 in March.
Nonetheless, the index remained above the “no change” level of 50 for the 16th consecutive month.
Business sentiment continued to improve, with increasing numbers of orders translating into a further rise in staffing levels.
“From what we are hearing from panellists, this certainly does not sound like an economy in recession,” said Markit economist Chris Williamson.
However, there were factors dragging down growth, as higher fuel prices hit the sector, squeezing margins, and demand growth slowed.
As a result, some economists now expect the Bank of England to try to stimulate demand still further with more monetary loosening next week.
“The level of activity now reported appears to be consistent with more QE under its post-crisis reaction function,” said Nomura’s Philip Rush. “So we still expect disappointment at demand growth to prompt a final £25bn of QE in May.”