Recent posts have argued that the Bank of England should not and probably will not expand asset purchases at its meeting this week. A range of evidence suggests that monetary conditions are sufficiently and possibly excessively loose. The Bank, meanwhile, faces difficulty in justifying a further extension given medium-term inflation prospects.

By contrast, 43 out of 62 economists polled by Reuters last week expect more asset-buying, with the majority split between a £25 billion and £50 billion increase. The Sunday Times Shadow MPC, which is often a good guide to the Bank's thinking, is also strongly in favour of an extension – see David Smith's blog for details.

This week's purchasing managers surveys for October are likely to be an important influence on the decision. As mentioned last week, earnings revisions pointed to strong results; the manufacturing survey this morning duly surprised positively, with the leading new orders component rising to its highest level since January 2004.

The companion survey covering the larger services sector will be released on Wednesday. Suppose, however, that the new business component is unchanged from its September reading. A weighted average of manufacturing new orders and services new business would then reach its highest level since September 2007 – two months after the final interest rate increase in the last tightening cycle. 

The chart shows Bank rate together with this new business indicator, with the last data point incorporating the services assumption. The MPC has eased policy only once with the indicator at or above its implied October level – in February 2001. Consumer price inflation, however, was then below 1% (and undistorted by VAT effects) while the US economy was entering, not exiting, a recession.