Manufacturers cheer up - but Governor begs to differ

Manufacturers may be less pessimistic, but Mervyn King is clearly still pretty gloomy about the economy...

Last Updated: 31 Aug 2010

Bank of England Governor Mervyn King actually wanted to pump an extra £75bn into the Bank’s quantitative easing scheme this month, as opposed to the £50bn it eventually went for, according to the minutes of the most recent Monetary Policy Committee meeting. So he’s clearly feeling a lot less chirpy than most of his colleagues about the current state of the economy – and less chirpy than British manufacturers, who according to a CBI survey released today, are feeling better about the outlook than at any time in the last year. Although of course, it’s all relative…

The Bank’s latest MPC minutes, released today, show that King and two of his fellow policy-makers wanted to boost QE by £75bn to £200bn – but they were out-voted by the other six, who plumped for a £50bn boost to £175bn instead. Even that was twice as much as the City expected, so it appears that King takes a much more negative view than most on the prospects for the economy – he clearly still thinks it will take radical action to stop us slipping into a deflationary spiral. The other obvious conclusion is that none of the MPC think QE is working (at least not yet), hence the need to ramp it up. They certainly aren’t planning to err on the side of caution, judging by these minutes: they feel ‘the risks of doing too little are more significant than the risks of doing too much,’ as Fathom Consulting’s Danny Gabay puts it.

A slightly more positive (well, slightly less negative) view emerged from the manufacturing sector today: the latest CBI survey showed that balance of those expecting output to rise relative to those expecting it to fall has dropped to -5% - the least negative figure since June 2008. That said, these figures are still pretty grim – almost a third are expecting output to drop, while more than half reported lower-than-average orders in August. So although technically levels of optimism are growing, it’s probably more accurate to say manufacturers are getting marginally less pessimistic. Let’s just hope none of them get chatting to Mervyn King any time soon, or this won’t last long...

In today's bulletin:

The NHS: Britain's unhealthiest place to work?
Manufacturers cheer up - but Governor begs to differ
John Menzies up - but Jessops slides again
'Pay now, die later' funeral packages on the rise
Green issues slip down the SME priority list

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