The latest intelligence on the state of the economy published by the Bank of England indicates that interest rates will continue to be set low for the rest of the year.
The latest Agents' Report, a survey of business conditions by the Bank's network of regional officers, suggests that there has been little improvement in the cost and availability of credit to small and medium-sized businesses, and only a "slight" improvement in export growth, despite sterling's 25 per cent depreciation in three years.
The minutes of the last meeting of the Monetary Policy Committee (MPC) were more cautious on price rises, noting that it is "increasingly likely" that inflation would be "well above target" for several months: it reached 3.5 per cent in January. The MPC voted unanimously to keep rates at 0.5 per cent and to leave quantitative easing (QE) – the injection of money directly into the economy – on hold.
Even so, few in the City think imported inflation and higher petrol prices will force the Bank's hand immediately. Philip Shaw of Investec said: "Our impression is that the main debate on the MPC remains between sanctioning further asset purchases and maintaining the status quo – in other words, the committee still has a de facto bias towards easing.
"We judge it very unlikely that any member of the MPC is starting to contemplate voting for higher rates, and any talk of tighter policy seems misplaced, at least until the recovery has gained some traction. But inflationary developments have ruffled a few of the hawks' feathers and the collective view, for now, seems to be backing away from providing more QE."
By far the most depressed sector of the economy, say the Bank's agents, is construction. The Bank reported: "Overall, contacts were very downbeat about prospects for the sector, with a number expecting the trough in activity to come in 2011."