Bank of England keeps QE on hold despite weakening economy

MPC ignores advice of IMF to print more money, while new services survey shows fall in confidence

The Bank of England refrained from more monetary stimulus to boost the economy yesterday, despite fears that the already beleaguered British economy could be about to be knocked sideways by chaos in the eurozone.

The Bank's Monetary Policy Committee (MPC) voted to keep its £325bn quantitative easing programme on hold after its two-day meeting, resisting calls, including from the International Monetary Fund (IMF), for the central bank to do more to support economic activity.

The move was met with surprise by some City analysts since several key, economic indicators have pointed downwards since the MPC's May meeting, when the nine-member committee also voted to keep its stimulus on pause.

"With the economy showing no sign of recovery and the Monetary Policy Committee's central forecast predicting inflation will trend back to target within two years, it is a bit surprising that the MPC has chosen to sit on its hands again," Andrew Smith, the chief economist at KPMG, said.

"The big picture is that output has been essentially flat for the past 18 months and there is no reason to expect any significant change in the short term," he added.

A snapshot of the manufacturing sector last week pointed to the biggest monthly fall in activity in May since the collapse of Lehman Brothers in 2008.

However, a survey of the UK's services sector, which makes up 75 per cent of the economy, yesterday showed a healthier picture. The Markit/Cips purchasing managers' index remained steady at 53.3 in May, with any figure above 50 indicating growth.

Yet there were also signs of the eurozone crisis beginning to hit home, with the index of business confidence among services purchasing managers falling to its lowest level of the year.

Unveiling the Bank's Inflation Report last month, the Governor, Sir Mervyn King, said inflation was now likely to remain above the 2 per cent target for the remainder of the year. And some members of the MPC have expressed concerns prices might not come down as quickly as previously hoped – something that is likely to have weighed against more money printing.

The way MPC members voted will not be known until the minutes of the meeting are released in a fortnight. In May's meeting, only external member David Miles voted for more stimulus of £25bn, but the minutes also said several members saw the decision as "finely balanced" and that "further monetary stimulus could be added if the outlook warranted it".

The IMF last month urged the Bank of England to print more money in its annual report on the state of the UK economy. The Office for National Statistics estimates that the economy shrank by 0.3 per cent in the first quarter of 2012, after falling by 0.3 per cent in the final three months of 2011.

The IMF also said the MPC should look to buy up corporate bonds to increase the flow of credit through the economy. Sir Mervyn has so far rejected such a course of action.

The Bank also kept its policy interest rate on hold at the record low of 0.5 per cent.

Life and Style
life
News
Brad Pitt and Angelina Jolie reportedly married in secret on Saturday
peopleSpokesperson for couple confirms they tied the knot on Saturday after almost a decade together
Sport
footballLive: Latest news from Champions League draw
Voices
Pupils educated at schools like Eton (pictured) are far more likely to succeed in politics and the judiciary, the report found
voices
PROMOTED VIDEO
Arts and Entertainment
TVShow's twee, safe facade smashed by ice cream melting scandal
Arts and Entertainment
tv
Arts and Entertainment
Lisa Kudrow, Courtney Cox and Jennifer Anniston reunite for a mini Friends sketch on Jimmy Kimmel Live
tv
Life and Style
tech
News
A photo of Charles Belk being detained by police on Friday 22 August
news
News
news
News
newsVideo for No campaign was meant to get women voting
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
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

Junior Asset Manager

£25000 - £35000 Per Annum: The Green Recruitment Company: Job Title: Junior As...

Investment Analyst

£33000 - £40000 Per Annum Discretionary profit share: The Green Recruitment Co...

Graduate / Trainee Recruitment Consultant

£20000 - £30000 per annum + OTE £45000: SThree: SThree are a global FTSE 250 b...

PMO Analyst - Risk - Banking - London - £350-£400

£350 - £400 per day: Orgtel: PMO Analyst - Risk - Banking - London - £350 - £4...

Day In a Page

Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone
Amazon is buying Twitch for £600m - but why do people want to watch others playing Xbox?

What is the appeal of Twitch?

Amazon is buying the video-game-themed online streaming site for £600m - but why do people want to watch others playing Xbox?
Tip-tapping typewriters, ripe pongs and slides in the office: Bosses are inventing surprising ways of making us work harder

How bosses are making us work harder

As it is revealed that one newspaper office pumps out the sound of typewriters to increase productivity, Gillian Orr explores the other devices designed to motivate staff
Manufacturers are struggling to keep up with the resurgence in vinyl records

Hard pressed: Resurgence in vinyl records

As the resurgence in vinyl records continues, manufacturers and their outdated machinery are struggling to keep up with the demand
Tony Jordan: 'I turned down the chance to research Charles Dickens for a TV series nine times ... then I found a kindred spirit'

A tale of two writers

Offered the chance to research Charles Dickens for a TV series, Tony Jordan turned it down. Nine times. The man behind EastEnders and Life on Mars didn’t feel right for the job. Finally, he gave in - and found an unexpected kindred spirit
Could a later start to the school day be the most useful educational reform of all?

Should pupils get a lie in?

Doctors want a later start to the school day so that pupils can sleep later. Not because teenagers are lazy, explains Simon Usborne - it's all down to their circadian rhythms
Prepare for Jewish jokes – as Jewish comedians get their own festival

Prepare for Jewish jokes...

... as Jewish comedians get their own festival
SJ Watson: 'I still can't quite believe that Before I Go to Sleep started in my head'

A dream come true for SJ Watson

Watson was working part time in the NHS when his debut novel, Before I Go to Sleep, became a bestseller. Now it's a Hollywood movie, too. Here he recalls the whirlwind journey from children’s ward to A-list film set
10 best cycling bags for commuters

10 best cycling bags for commuters

Gear up for next week’s National Cycle to Work day with one of these practical backpacks and messenger bags
Paul Scholes: Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United

Paul Scholes column

Three at the back isn’t working yet but given time I’m hopeful Louis van Gaal can rebuild Manchester United
Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

Kate Bush shows a voice untroubled by time

A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
Robot sheepdog technology could be used to save people from burning buildings

The science of herding is cracked

Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

This tyrant doesn’t rule

It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?