Bank to keep stimulus on pause
Monday 07 January 2013
The Bank of England's rate-setters will hold off on further aid for economic recovery this week despite the threat of another slump looming again over Britain.
The outgoing Governor, Sir Mervyn King, has warned of potentially negative growth in the final three months of 2012, as a hangover from a Olympics-inspired third quarter – which fuelled a 0.9 per cent advance – drags the UK back into the mire.
The first fall in activity for two years for Britain's services firms – accounting for more than three-quarters of output – has sparked predictions of a 0.2 per cent decline for the economy between October and December when the Office for National Statistics' first estimate of growth is published on 25 January. Manufacturers are also struggling, and despite stronger signs from the construction industry, its share of the overall economy is too small to make a significant difference.
Economists say the Monetary Policy Committee is almost certain to hold interest rates at their record low 0.5 per cent on Thursday and keep quantitative easing at the current £375bn, although dovish David Miles has voted for more stimulus. Inflation concerns will stay the MPC's hand as the cost of living edges back towards 3 per cent in the months ahead.
"In economic terms minus or plus 0.1 per cent doesn't really make any difference, but politically a positive number would be very helpful for George Osborne," IHS Global Insight's Howard Archer said.
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