UK Data Steps Up Fears of Additional Quantitative Easing

Data has put another thorn in sterling’s side after data revealed a further slowdown in UK manufacturing activity. The purchasing managers’ index (PMI) slipped back to 53.4 in September, from a downwardly revised 53.7 in August. Although still holding above the important 50.0 level, which marks industry expansion, the index is at its lowest since November as export orders disappoint.

The data is likely to lend further support to the dovish members of the Bank of England (BoE) who believe current conditions warrant a further round of quantitative easing (QE) in order to safeguard the recovery.

Duncan Higgins, senior analyst at Caxton FX, said: “The data simply fuels the argument that additional monetary easing is necessary. Activity in the manufacturing sector has been on the decline for four straight months, which does not bode too well for third quarter growth.

“Quantitative easing is likely to be the hot topic at the next MPC meeting on 7 October and a decision in favour would send sterling through the floor. It is far from a foregone conclusion, but should the figures continue to paint this picture of a recovery losing steam, the argument against QE will become ever harder to defend,” he added.

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