Bank of England holds interest rates at 0.5 per cent and rules out extension to quantitative easing plan

 

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."

PA

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Guru Careers: FX Trader / Risk Manager

Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

Day In a Page

Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

No grace of God for Katy Perry as sisters act to stop her buying convent

Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

Residents just want water and power in a city chosen to be a ‘smart’ metropolis

The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

Something wicked?

Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
10 best sun creams for body

10 best sun creams for body

Make sure you’re protected from head to toe in the heatwave
Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

Nick Bollettieri's Wimbledon files

Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

There is more than a shiny trophy to be won by England’s World Cup women

The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map