Tha Bank of England's Monetary Policy Committee faces a tricky choice over whether to hold off on its quantitative easing (QE) programme, or to take it further, when it meets to discuss interest rates this Thursday.
The Bank has pumped, as planned, £200bn into the ailing British economy since last March in an effort to boost activity. But that target amount was reached last week just as fourth quarter GDP statistics showed a spectral 0.1 per cent growth, far from the 0.4 per cent expected by the City.
Although the UK is out of recession, the recovery is so slight that there are real concerns it could yet slide back. And the evidence of such a lacklustre economic performance has knocked the certainty that the Bank will bring QE to a formal end at this week's MPC meeting. Equally, however, the inflationary spike to 2.9 per cent in December, and the expectation it will breach 3 per cent in January, argues against an extension of the programme.
"It is highly likely that there could be a split among the nine MPC members over whether or not to extend QE," Howard Archer, the chief UK economist at IHS Global Insight, said.
Most economists expect that the MPC will still bring the programme to a halt, but perhaps only temporarily. "The MPC could well indicate that it is still keeping all of its options going forward and the door is not closed on further QE," Mr Archer said.
The looming general election also does not help. Stern fiscal tightening looms, whichever party wins, and monetary policy may need to be loosened further to counteract the effects.
But the size and timing of any such move hinge on the election's outcome. "The dilemma is that we have barely crawled out of recession and there is a lot of uncertainty ahead," Jonathan Loynes at Capital Economics said.Reuse content