Looking at disappointing PMI reports BoE is likely to take measures

Looking at the disappointing PMI reports, even if could be the result of just worsening sentiment, the Bank of England (BoE) is likely to announce some measures at tomorrow’s policy meeting. On Monday, PMI data from Markit economics showed that manufacturing sector activity has weaken to levels last seen in early 2013.Only good news has been the increase in export orders, which had a helping hand from sterling’s depreciation. On Tuesday, construction PMI report saw the fastest overall output drop since June 2009. Over the past few years pay in the construction sector has risen sharply so any adverse hit at the sector is likely to hit wages. Today services PMI was released and the picture is no different. Services output and new business both fell at fastest rates since March 2009. Expectations have hit weakest level since February 2009. Only assurance is that no layoffs have kicked in yet.

The Bank of England (BoE) is meeting tomorrow and will be announcing policy decision. The market is certain that a rate cut is coming from the central bank. But the bank will have to do more than that to boost confidence. Overall interest rates are low, so what is required is to take measures to keep up the level of confidence and the lending going. We expect the bank to do a bit more than just a rate cut. It needs to take action to ease any future liquidity spike; it needs to ensure foreign liquidity too in the banking system. Measures are also likely that will target lending. An increase in asset purchase is also likely to boost sentiment.