U.K.'s PMI Continues Its Decline in October

After a buoyant PMI manufacturing data released the previous day showing expansion, today the U.K. released its PMI construction for October showing unexpected drop for the second month in October.

Today's data showed that the building sector declined to 46.2 compared with the previous 46.7 and the forecasted reading of 47.2. In September, construction dropped to 46.7 from 47.7 in August.

Construction which was responsible for growth in the period preceding the global downfall is still impacted by the recession as figures are still below the 50 barrier showing contraction compared with manufacturing and services. PMI services for October will be released this week also which will give a complete picture about whole sectors of the economy.

Moreover, next Thursday the MPC members will meet to set the interest rate and determine the quantity of the asset purchase facility program. Currently, the rate is at 0.5% and the APF is 175 billion pounds. Expectations are referring that there may be expansion to the program to 200 or 225 billion pounds to give a boost to the economy before withdrawing stimulus.

The viability of the program has been questioned recently, especially as it did not succeed in jolting the economy out of recession. World economies will embark a new monetary strategy in the coming period as they will shift towards more contractionary monetary policies by stalling stimulus plans and raising interest rate gradually. Australia, for instance, raised the borrowing cost twice and is continuing its tightening policies.

Fears of long-term inflation or improvement witnessed recently are encouraging central banks to withdraw the stimulus packages. Some economists are warning that such action may make economies vulnerable to another drop as still assistance is needed. Although data is showing progress, but inflation is low, unemployment is rising and many banks are asking for help from government.

The European Commission reiterated its forecasts for the U.K. growth in 2009 to 4.6% contraction instead of 4.3% announced in July, while it anticipates the economy to expand in the fourth quarter to 0.4%, higher than the prior estimates of 0.2% contraction. With regard to the British government, it predicts growth in the last quarter of the year and a contraction between 3.25% and 3.75% for the current year as a whole.