The Monetary Policy Committee has been encouraged by recent better economic news and a pick-up in "adjusted" M4 but retains the view expressed in the May Inflation Report that further easing is likely to be required to prevent inflation from undershooting the target over the medium term, according to minutes of the June meeting released today.
This suggests that the odds slightly favour the MPC expanding asset purchases to the £150 billion current maximum at its July meeting, while simultaneously seeking Treasury authority for a higher limit. However, the Committee could yet choose to suspend QE at £125 billion if forthcoming business surveys and monetary data show further improvement. (The Governor's Mansion House speech this evening may provide more information.)
Labour market statistics also released today continue the recent pattern of better-than-expected news. The monthly rise in claimant-count unemployment slowed to 39,000 in May, down from a peak of 137,000 in February and the smallest increase since July 2008. This slowdown should soon be reflected in the lagging Labour Force Survey unemployment measure – see first chart.
Labour demand appears to holding up better than many feared. The monthly number leaving the claimant count has risen steadily so far this year (admittedly partly reflecting some claimants exhausting entitlements), while the rate of decline of job vacancies has eased. Indeed, the 6% drop in vacancies in the three months to May is consistent with other evidence that the economy has stopped contracting – second chart.
