Economy: Bank of England leaves interest rates and QE programme on hold
THE Bank of England held back from pumping more emergency cash into the economy today amid hopes that the UK has avoided a technical recession in the first three months of the year.
The Bank’s Monetary Policy Committee (MPC) kept its quantitative easing (QE) stock on hold at �325 billion, after injecting �50 billion in February, and also pegged interest rates at the record low of 0.5%.
The MPC’s April meeting follows a number of positive surveys that have suggested the economy returned to growth in the first quarter of the year.
But the upbeat mood in the City was jolted today by figures showing a surprise contraction in manufacturing activity in February.
Many economists still expect another multibillion cash injection from the Bank later in the year, possibly in May and despite American counterparts at the Federal Reserve increasingly moving away from further QE.
Minutes published on Tuesday showed fewer members of the Fed said more QE in the US could be necessary in the future.
In London, two of the MPC’s nine members are likely to have repeated calls for an additional �25 billion QE boost during today’s meeting. But they will have been outgunned by those who do not want to rush into pumping more money into the economy as it could push up inflation.
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The UK’s recovery has shown tentative signs of gathering pace, particularly after the powerhouse services sector grew at a faster-than-expected rate in March.
But the economy shrank by a bigger than previously thought 0.3% in the final quarter of 2011, while influential forecaster the OECD said there was a further contraction of 0.1% in the first three months of this year, meaning the economy was back in recession.
Most economists think growth will be sluggish and lacklustre for at least the next three months, while there are also doubts as to whether inflation will fall back to its 2% target in the coming months, as the Bank has predicted.
Inflation eased to 3.4% in February from its peak of 5.2% in September and its continued reduction is seen as being key to the recovery because it will alleviate the squeeze on consumers and spark a rise in spending.
But at its last meeting, in March, the Bank said high oil prices and rising mortgage rates threatened its forecast and could weaken global growth.
The high levels of inflation have hit savers, who have seen the value of their pots eroded by the high cost of living and low interest rates.