Bank of England holds interest rates at 0.5 per cent and rules out extension to quantitative easing plan
Thursday 05 April 2012
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 at £325 billion, after injecting £50 billion in February, while holding interest rates at a 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 of a meeting published on Tuesday showed fewer members of the Fed said more QE in the US could be necessary in the future. This shook world markets, with the FTSE 100 Index down by more than 2% yesterday.
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.
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.
Ian McCafferty, CBI chief economic adviser, said the focus was now on whether further asset purchases will be announced next month.
He added: "It's a difficult judgment call, but on balance we're not expecting a further extension next month.
"Recent economic data has been more encouraging, and with oil prices high, there's now less certainty around how far and how fast inflation will fall."
- 1 I've been called an abusive and dangerous parent, when all I did was listen to my transgender child
- 2 Smartphones are making children borderline autistic, says psychiatrist
- 3 Why this father didn’t hide his daughter’s heroin overdose in her obituary
- 4 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 5 Teaching profession headed for crisis as numbers continue to drop and working lives become 'unbearable'
Smartphones are making children borderline autistic, says psychiatrist
Nepal earthquake: More than 1,100 killed across four countries and in Mount Everest avalanche
Nepal earthquake: The race is on to help thousands trapped under rubble around Kathmandu, while remote villages face a long wait for help
Royal baby: Live updates as superbug closes ward at St Mary's Hospital where Duchess of Cambridge is due to give birth
Teaching profession headed for crisis as numbers continue to drop and working lives become 'unbearable'
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...