MacroScope

Forecasting gymnastics on the BoE’s printing presses

The fluctuating fortunes of the British economy in the last year have left forecasters in a fix, unable to make up their minds how much longer the Bank of England’s money printing presses need to roll on.

Forecasting gymnastics on the subject could make many economists Olympic contenders for the gold medal.

Deutsche Bank, Morgan Stanley and Lloyds Bank are the latest to predict the BoE will announce that it will buy an additional 50 billion sterling worth of government bonds, taking the total amount spent in the programme to 375 billion sterling.

That was a sudden change from saying just a week ago that there would be no further increase in QE.

Why such an abrupt hairpin turn?

“Last week’s May manufacturing PMI survey was, to put it simply, a game changer. Until then we had been arguing the BoE would sanction no more QE after ending the previous programme last month.  But conditions have worsened,” George Buckley, chief UK economist at Deutsche Bank wrote.

UK recession in charts

Britain’s economy slid into its second recession since the financial crisis after official data unexpectedly showed a fall in output in the first three months of 2012:

Starting real GDP at 100 in 2003 for the UK, U.S. and euro zone shows UK GDP flat since mid-2010 and well below the 2007 peak.

Survey data had been suggesting a stronger GDP number and perhaps points to upwards revisions to come.