Bank considers printing more money

Its Monetary Policy Committee (MPC) is widely expected to leave interest rates at their record low of 0.5 per cent and the stock of quantitative easing at £325bn, although the decision is set to be a close call.

However, if a closely watched survey of the important services sector released hours before members make their decision shows a contraction it could prompt the Bank to fire up its money printing presses again.

A contraction of the services sector would add weight to fears that the economy is deteriorating after the manufacturing sector suffered a shock contraction in the second biggest decline in the 20-year history of the Markit/CIPS survey.

Industry data, such as the Markit surveys, have until recently painted a much more upbeat picture of the economy than official figures, which is why last week’s manufacturing data came as such a shock and a contraction in the services sector may be crucial to the Bank’s decision.

Philip Shaw, chief economist at Investec, believes the manufacturing decline may have unnerved the MPC but it was not “a game changer”, whereas a similar trend in the services sector, which makes up some three-quarters of the economy, would be “a different story”.

Simon Hayes, an analyst at Barclays Capital, said: “If the services sector PMI published on Thursday morning were to show a similarly precipitous fall, the MPC is likely to give serious consideration to a QE expansion.”

However, the City only expects the Markit data for the services sector on Thursday to show a slow-down in growth rather than a contraction.