The Bank of England faces a "nail-biting" decision over pumping billions more into the UK recovery this week as figures reveal the still-sluggish impact of its flagship initiative to boost lending.
The central bank will tomorrow unveil the latest results of its Funding for Lending scheme, introduced to kick-start credit markets last August, which allows banks to access cash at a cost of 0.25 per cent. In exchange they have to increase net lending in an economy still struggling for momentum.
Figures for the June-September quarter last year showed 39 banks and building societies accounting for £1.36trn in loans drew down £4.36bn in funds and grew net lending by just £496m. Although mortgage rates have fallen sharply since the scheme was introduced, borrowing rates for businesses have remained unchanged and the flow of business loans sank by £2.1bn in December, according to Threadneedle Street figures.
The Bank's executive director for markets, Paul Fisher, has also played down hopes of a swift impact from the scheme, saying last week that it is "still quite early for much extra money to have flowed from the application stage into actual loans". Mr Fisher is one of three members of the monetary policy committee, including Governor Sir Mervyn King, calling for additional quantitative easing to give the economy "sustained momentum".
Since February's meeting, Italy's hung parliament has thrown the eurozone's woes into sharp relief. Political impasse in the US, has triggered up to $85bn (£51bn) in automatic spending which threatens growth this year.
ING Bank's economist James Knightley said the MPC vote could be a "nail-biter". "It wouldn't take much for (deputy Governors) Paul Tucker or Charlie Bean to switch sides though you can't see people like Spencer Dale voting for more QE. There's clearly been a change of mood around the Bank. We also have the impact of sequestration in the US as well as a more negative risk environment in Europe after the Italian elections."
HSBC's chief UK economist Simon Wells added: "We think there'll be no change but it only takes two people to change their mind. What has changed is that the Bank is under pressure to do something."
Mr Tucker floated the idea of negative interest rates on bank reserves this week as rate-setters look at all options to stimulate growth ahead of Mark Carney's arrival as Governor in the summer.