With all 12 inputs now available, the “MPC-ometer” continues to predict a narrow majority in favour of expanding QE at this week’s meeting. This is the first easing signal given by the model since November 2009, when the MPC announced a further £25 billion of gilt purchases.

The final input was today’s PMI services activity index for August, which continued the recent run of weaker-than-expected data by falling from 55.4 in July to 51.1 – the consensus forecast was 54.0.

The MPC-ometer’s output is in the form of a prediction for the average interest rate vote of Committee members. The September forecast is -18 basis points, consistent with six members voting for a quarter-point cut and three no changes.

Since the MPC appears to have set 0.5% as a floor for official rates, the suggested six doves will, presumably, vote instead for an expansion of QE. (At the August Inflation Report press conference, the Governor stated that “We can raise Bank Rate or we can increase our asset purchases according to the direction in which we want to go.”)

The consensus expects the current high headline CPI increase to prevent the MPC from moving this month but the Committee, historically, has accorded more weight to forward-looking survey and market inflation measures. CBI industrial firms’ pricing plans have softened notably since the early summer, as have five-year inflation expectations implied by the gap between conventional and index-linked gilt yields – see chart. The MPC cut rates in October 2008 despite CPI inflation of 4.7% as the global economic outlook darkened following Lehman’s collapse.

The suggestion that the MPC will ease this week does not imply approval of such action. Previous posts have argued that – in contrast to early 2009 – the UK economy is not suffering from a shortage of liquidity. “Excess” money created by more QE could put further downward pressure on the exchange rate, thereby boosting tradeable goods prices and inflation rather than activity.