Today’s MPC Minutes confirmed that members of the committee are on heightened alert regarding the necessity for further stimulus. Interestingly, a cut in the base rate (currently 0.5%) was not discussed apparently, although if this is the case then it is troubling. Although the vote to maintain asset purchases at GBP 375bn was unanimous, it is clear that some members could be convinced to vote for more over coming months should the need arise.
Complicating this task somewhat was the announcement that the number of people in work jumped more than 200K in Q2, to 29.5m. London hiring accounted for around half of this gain, helped to some degree by the Olympics. The continuing strength of the labour market over recent quarters - at a time when the economy has been shrinking - remains a puzzle for most commentators. Is it that the growth figures are being understated or that employment has benefitted from a number of one-off factors such as the Jubilee and the Olympics? The latter likely forms part of the explanation, but clearly something else is going on as well.
Interpreting the economic data in coming weeks will not get any easier for the Bank. During the Olympics, for instance, the country was transfixed, which slowed activity and demand in a number of sectors such as retail, construction and manufacturing. At the same time, the flood of tourists arriving in the country has clearly been good news for London. Also, the Jubilee celebrations cut around 0.5 percentage points off growth last quarter, and some of this will be reversed in the current period.
As a result, although policy-makers are clearly prepared to act if necessary, more QE from them in the short term is not a fait accompli.