UK MPC-ometer: easing bias but no QE extension
Simon Ward
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The forecast here that the MPC will suspend QE at its meeting next week is supported by the “MPC-ometer” model discussed in previous posts. This attempts to predict the monthly decision based on the latest values of 12 economic and financial inputs, including business / consumer confidence measures, GDP growth, inflation, wage increases, measures of price expectations, credit spreads and the stock market.
The provisional model reading for November is negative, indicating an easing bias, but within the range consistent with no change in policy – see chart. This incorporates new data for 10 of the 12 inputs, with the remaining two components – from the PMI manufacturing and services surveys to be released on Thursday and Monday respectively – assumed to be unchanged from last month. The PMIs would need to weaken sharply to tip the model into the easing zone.
The no change prediction has been influenced by stronger third-quarter GDP growth (adjusted for the bank holiday distortion), a rise in consumer inflation expectations, firm stock prices and a fall in interbank interest rates, among other factors.
Note that the model correctly predicted the launch of QE2 in October 2011 and its extension in February. It also signalled the further £50 billion addition in July, though was early, turning dovish from May.
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