The European Central Bank will meet in Malta today and is expected to leave monetary policy unchanged for another month despite inflation falling back into negative territory and growth remaining subdued. Given that we’re almost a year on from its decision to start buying €60 billion of mostly government bonds each month, there doesn’t seem to be much of an argument to hold off on easing further but that fact has never forced them into action before so it’s unlikely to now.
The recent survey on eurozone bank lending, which found that quantitative easing has eased credit conditions for both companies and households, should really encourage the ECB to up its efforts to get the economy back on track. Unfortunately, it will probably have the opposite impact and solidify the view that QE is working and just needs more time to be reflected in the data.
ECB President Mario Draghi is likely to play his usual role today of talking up the risks to the eurozone economy and highlighting the broad range of policy tools available to the central bank, should it wish to use them. The effect is a kind of verbal stimulus that Draghi has become well known for in that he talks up the potential for more monetary stimulus which can frequently have a similar, albeit smaller, weakening impact on the euro. For example, we could see Draghi talk up the potential for QE to go beyond next September’s initial end date, increase between now and then, or even reopen the door to further rate cuts.
It’s been a slow summer for consumer spending in the UK in much the same way that we saw last summer, but we are expected to see a slight improvement in September with monthly sales rising by 0.4%. The numbers still represent a significant improvement on last year though, up 4.8%, so at this stage it’s nothing to be concerned about.