Banking analysts have urged the Bank of England (BoE) to do everything it can to boost the UK economy and said the case for stimulus is clear.
Analysts at Bank of America Merrill Lynch (BoAML) said in a note today that UK soft data "looks bad… the economy has taken a big hit and may be in contraction", and in their chart of the day (see below) illustrated how the UK has taken a hit.
The analysts said rate setters will "have to cut their growth forecasts heavily" in the quarterly inflation report due out this Thursday, 4 August. The BoE will also have to "highlight the downside risks, though we do not expect them to forecast recession (just)".
BoAML advocated a trio of solutions that the Bank could use – a 25 basis points rate cut to 0.25 per cent, £50bn in quantitative easing (QE), split between gilts and corporate bonds, and 'credit easing', i.e. more lending.
"The BoE should throw the kitchen sink at the problem," the analysts wrote, adding that "the worst thing that could happen now is the stimulus does not work, so better to do too much".
The experts were fairly confident that the BoE would take action, citing "dismal data since the last policy meeting (which rate setters seemed not to expect)" and monetary policy committee (MPC) member Martin Weale's "dovish flip-flop".
Futures markets yesterday indicated that there is a 98.1 per cent probability the MPC will slash interest rates at this week's meeting.