Economics Weekly by Lloyds TSB

Signs of a weakening in the UK economy are becoming more widespread. Since GDP growth of 1.2% in Q2, UK purchasing managers’ indices have turned lower, volume retail sales has shown the first fall in four months and business and consumer confidence is turning down. With interest rates pretty much as low as they can go at 0.5% Will QE become QE2?

Signs of a weakening in the UK economy are becoming more widespread. Since GDP growth of 1.2% in Q2, UK purchasing managers’ indices have turned lower, volume retail sales has shown the first fall in four months and business and consumer confidence is turning down. With interest rates pretty much as low as they can go at 0.5%, the only real monetary option left is quantitative easing – directly injecting liquidity into the economy via the central bank buying securities from the financial markets. Our own Business Barometer – a better lead indicator of economic activity in the next three months than the PMI survey – is suggesting that economic growth could be flat by the end of the year. In this weekly, we look at the prospects for a resumption of QE – or QE2.

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