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Following a summer in which Britain tripped on its own shoelaces in economic terms, the Bank of England has ridden to the rescue and announced another £75bn in quantitative easing.
This could provide a much-needed shot in the arm. The BoE puts the impact of the previous round of £200bn quantitative easing (following the 2008 crash) at between 1.5 per cent and 2.0 per cent GDP. Of course, the bank cannot guarantee QE2 can provide an equal boost – but it is optimistic.
(For blog followers that don’t know, quantitative easing is the process of injecting funds – hence, shot in the arm - into the market in hopes that businesses use the cash to invest. This then prompts economic growth.)
BoE heroics aside, data from Britain in the last week has, in fact, been on the sunny side.
Output in the dominant Services sector leapt to 51.1 last month according to the latest PMI - beating expectations of a decline to 48.9. This tells us that Services continues to expand in spite of the economic doom and gloom. In addition, the latest Price Producer Index (measuring the change in prices charged on domestic output) jumped to 1.7 per cent last month against 1.4 per cent forecasts.
Turning to the Eurozone, economic conditions continue to resemble an old piece of bread that has been left in the sun too long: becoming rapidly mouldy.
Last month, EU retail sales dived -1.0 per cent - collapsing more than 0.2 per cent expectations. In addition, German factory orders dropped -1.4 per cent.
In fact, so dire has the situation become that French and German leaders Angela Merkel and Nicholas Sarkozy clubbed together over the weekend promising to announce a once-and-for-all solution to Eurozone woes at an upcoming G20 conference. The markets await this with baited breath.
In light of ongoing Eurozone turmoil, the US dollar has gone from strength to strength as investors flee to safe haven currencies.
This is although economic data from the US has been tepid at best. For instance, the latest Non-Farm Payroll data (measuring new jobs created in non-agricultural areas) beat expectations – jumping to 103k last month against 73k forecasts. This though is beneath the 125k figure needed to reduce the US unemployment rate.
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