Starting Q4 with a bang, but will it all fizzle out in the New Year? - Ernst & Young - United Kingdom

• We started the final quarter with a bang, with both manufacturing and services PMI data showing increases in activity.
• The economy will return to growth in the fourth quarter.
• We still expect an increase in the quantitative easing programme to be announced.

"We started the final quarter with a bang, with both manufacturing and services PMI data showing increases in activity. The headline business activity indicator of the PMI survey for services is now at its highest since August 2007, with new business also increasing at its fastest pace in over two years.

"This reinforces our view that the economy will return to growth in the fourth quarter, though it is  worth noting that the PMIs have pointed to stronger GDP figures than have been seen in the official estimates over the past two quarters and so on this basis we remain cautious about the outlook.

"While the VAT reversal is expected to encourage consumers to bring forward their spending, helping to ensure a positive growth outcome for Q4, demand is forecast to be weak in the early part of next year. Meanwhile other factors which are supporting growth, namely a turn in the stock cycle and the car scrappage scheme, are short-term in nature. Once these effects fade, the recovery will be slow and fragile.

"Therefore, despite today’s strong data, we do not think this will be enough to dissuade the Bank of England that more action on the monetary policy front is required, and still expect an increase in the quantitative easing programme to be announced."